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Distributional Effects of Intergovernmental Transfers in Mexico

Author

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  • Rodriguez Castelan,Carlos
  • Cadena,Kiyomi E.
  • Moreno Herrera,Laura Liliana

Abstract

A rigorous understanding of the developmental effect of fiscal transfers to subnational governments remains an important policy research issue globally. This paper exploits a novel dataset of 20 years of municipal poverty maps and local public finances to study the effects on local welfare of a large fiscal transfer fund earmarked for social investment in more than 2,000 Mexican municipalities. Results show a positive but modest effect on the average household income, and positive effects on seven nonmonetary welfare measures. In contrast, these funds have no significant impact on extreme and moderate monetary poverty. These results provide important lessons for policy on the effects of earmarked funds to reduce territorial poverty and inequality in terms of incentives to design formulas to distribute earmarked fiscal resources to subnational governments.

Suggested Citation

  • Rodriguez Castelan,Carlos & Cadena,Kiyomi E. & Moreno Herrera,Laura Liliana, 2020. "Distributional Effects of Intergovernmental Transfers in Mexico," Policy Research Working Paper Series 9209, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9209
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    References listed on IDEAS

    as
    1. Akai, Nobuo & Sakata, Masayo, 2002. "Fiscal decentralization contributes to economic growth: evidence from state-level cross-section data for the United States," Journal of Urban Economics, Elsevier, vol. 52(1), pages 93-108, July.
    2. Vivi Alatas & Abhijit Banerjee & Rema Hanna & Benjamin A. Olken & Ririn Purnamasari & Matthew Wai-Poi, 2019. "Does Elite Capture Matter? Local Elites and Targeted Welfare Programs in Indonesia," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 334-339, May.
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    Cited by:

    1. Cheng-Tao Tang & Chun Yee Wong & Orelie Bathan Delas Alas, 2022. "Effects of Intergovernmental Transfers on Income and Poverty Rates: Evidence from the Philippines," Working Papers EMS_2022_06, Research Institute, International University of Japan.
    2. Tang, Cheng-Tao & Wong, Chun Yee & Alas, Orelie Bathan Delas, 2024. "Effect of intergovernmental transfers on income and poverty rates: Evidence from the Philippines," World Development, Elsevier, vol. 173(C).

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    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • D30 - Microeconomics - - Distribution - - - General
    • 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
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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