Political pressure and procyclical expenditure: An analysis of the expenditures of state governments in Mexico

- We test for cyclicality in government spending and revenues.
- Empirical evidence comes from 31 states in Mexico, 2005-2010.
- Spending and revenues are found to be procyclical.
- Political pressures and political networks can partly explain the procyclicality.

Government expenditures are procyclical if they increase in periods of economic growth and decrease in periods of economic downturn. This paper tests the proposition that (within federations) political pressures for public expenditure increase the likelihood that expenditures and intergovernmental transfers will be procyclical. An analysis of political pressures in Mexico suggests that political pressures will produce a distinct pattern of procyclical expenditures across fiscal tiers and across government budgets. This prediction is tested with reference to the expenditures of 31 states in Mexico between 2005 and 2010.