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The Effects of Corruption on Budgeting and Financial Management in Mexican Local Governments

Author

Listed:
  • Gabriel Puron-Cid

    (Department of Public Administration - Centro de Investigacion y Docencias Economicas, A.C. (CIDE))

  • Heidi Jane M. Smith

    (Department of Economics, Universidad Iberoamericana)

Abstract

Motivated by high-profile subnational fiscal crises linked to corrup-tion—such as Coahuila’s debt buildup under Governor Humberto Moreira—this chapter examines how corruption is associated with the fiscal condition of Mexican municipalities within a multi-level governance setting. Using a panel of 92 municipalities and 28 states (2018, 2019, 2021; 277 observations), the study relates survey-based corruption victimization measures to a latent municipal fiscal condition construct grounded in a financial sustainability frame-work. The empirical strategy uses structural equation modeling (SEM) with a Multiple Indicators, Multiple Causes (MIMIC) specifi-cation to estimate correlations between corruption (municipal and state) and fiscal condition while incorporating key socio-economic controls, without claiming causality. Results indicate a nuanced pat-tern: municipal corruption is negatively but not significantly associ-ated with fiscal condition, whereas state-level corruption shows a positive association with the latent fiscal condition measure, along-side evidence consistent with spillovers between state and municipal corruption. The analysis underscores the importance of embedding financial indicators in their socio-economic context and highlights policy levers focused on oversight, transparency, and capacity building to mitigate corruption risks in subnational public financial management.

Suggested Citation

  • Gabriel Puron-Cid & Heidi Jane M. Smith, 2026. "The Effects of Corruption on Budgeting and Financial Management in Mexican Local Governments," Working Paper Series Sobre México 2026001, Sobre México. Temas en economía.
    • Handle: RePEc:smx:wpaper:2026001
    as

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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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