Fiscal federalism in Mexico: an analysis of the federal participation

Abstract

The empirical evidence shows that when local governments receive funding almost exclusively through subsidies, it encourages greater spending, and probably a less efficient allocation of public spending. With the lack of correlation between the degree of decentralization of spending and the decentralization of revenue, results budget problems to local governments. Count with new tax sources represents to local governments a recovery of competence to influence the quality and quantity of its own revenues; besides, this allows them to influence regional economic development by designing its own tax policy.