Fiscal Federalism and Redistribution in Mexico

Abstract

Fiscal federalism in Mexico has been designed to ensure cohesion among unequal constituent units (both states and municipalities), through a mildly redistributive system of revenue sharing and relatively large social expenditure transfers for education, health and social infrastructure provided by the federal government. However, the Mexican transfer system is not particularly redistributive. Mexico remains, notwithstanding massive intergovernmental transfers and federal programs aimed at poverty alleviation, one of the most unequal federations in the world, both in terms of regional inequality and personal income distribution. After the transition to democracy in 2000 the system of federal transfers grew in size, but did not become, compared to the era of hegemonic party rule, more redistributive. Despite decades of reform to fiscal federalism, regional inequality across states remains virtually unchanged.