Is Local Beautiful? Fiscal Decentralization in Mexico

SummaryIn this study, we present evidence from Mexico regarding the weak effectiveness of federal transfers and low absorption capacity of sub-national governments in poor areas, when political opportunistic behavior is present. We show that the distribution of conditional transfers is discretionary, due to a monitoring problem, and deficiency in institutional frameworks. This may be the cause for opportunistic behavior by political elites. The results suggest that more funds are distributed to areas with more voters. In addition, localities with a higher number of swing voters also receive more resources. These results show that the poorest populations receive the least amount of money from the community-based development funds.