Skip to main content

Mexican northern border municipalities, financial dependence and institutions

The Annals of Regional Science volume 40, pages 859–874 (2006)Cite this article

Abstract

Mexican northern border municipalities have experienced economic and populational growth rates that are much higher than other Mexican regions resulting in higher demand for public services and infrastructure. The different institutional framework, both fiscal and legal, faced by municipalities in every Mexican State might impact the fiscal behavior of local governments. This article examines whether border municipalities are more financially dependent on central authorities due to the high demand for public services in their jurisdictions and their inability to obtain sufficient funding. Several econometric models are estimated for 300 Mexican municipalities in the year 2000. A strong and negative relationship between income and financial dependence is found, as expected. We also learned that institutional and regional factors should not be omitted in the model specifications. Statistical theory based on the estimations shows that the border municipalities of Ciudad Juárez and Puerto Peñasco have systematically lower financial dependence than others. However, there is no general rule regarding border municipalities and financial dependence.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price includes VAT (USA)
Tax calculation will be finalised during checkout.

Notes

  1. Demographic and migration data sources: INEGI, XI Censo de Población y Vivienda, 1990; INEGI, Conteo de Población y Vivienda, 1995; and INEGI, XII Censo General de Población y Vivienda, 2000.

  2. Arellano Cadena (1996) presents a historic overview of the allocating nonconditional federal transfers’ schemes. See Ortiz Ruiz (1996) for details on calculating the coefficients and Courchene and Díaz Cayeros (2000) for a description of the Mexican system of transfers.

  3. The general fund (“fondo general de participaciones,” FGP), the most quantitatively important, is constituted with 20% of the federal tax revenue (“recaudación federal participable,” RFP). The other funds are composed of federal excise taxes, 1% of RFP by federal user charges coordination, the 80% of the real value of subrogated agricultural and cattle taxes, the federal tax on vehicles, the federal tax on new autos, and a contingency reserve.

  4. State GDP from INEGI, Sistema de Cuentas Nacionales de México in http://www.inegi.gob.mx. Employed population and income of employed population from INEGI, XII Censo General de Población y Vivienda 2000, Aguascalientes, 2001.

  5. Own construction with data from INEGI. Finanzas Públicas Estatales y Municipales de México: Aguascalientes, 2001.

  6. We acknowledge, as an anonymous referee has suggested, that the economic activity generated by migrants should be incorporated into the empirical model. We are not aware, however, of any available data for the 300 municipalities considered in this study. We leave the construction of a possible proxy on migration flows and a full assessment on their effects for future work.

  7. Revenue received by means of conditional transfers other than participaciones federales could affect financial dependence through the municipality’s own resources. If, as a consequence of conditional transfers, municipal expenditures increase by a larger amount than the transfer, own resources would have to rise (p. 804 in Stine 1994) and municipal dependence would fall. Otherwise, such transfers would affect municipal expenditure without requiring the generation of additional own source revenue. In such a scenario, the local government would apply the transfers on the expenditure item for which it was conceived. However, the amount received by the municipality could create a disincentive to exploit own revenue sources if the federal government takes care of the fiscal needs, moving up the degree of dependence. Therefore, the effect on the degree of local government dependence would depend, in general, on the reaction to federal transfers and especially on expenditure price elasticity.

  8. The concept is due to Musgrave and Musgrave (1980) and has been empirically implemented by Badu and Li (1994) and Mercer and Gilbert (1996). It is defined as the ratio between revenue generated from taxes and revenue from taxes if the standard tax rate were applied. It is thus the ratio between the observed tax rate and the standard tax rate.

  9. We also estimated the empirical model with CONC included as the independent variable instead of T. We did not include both in the right hand side due to multicolineality. Those estimations suggest that both institutional differences and regional features of border municipalities help explain variations in the degree of financial dependence for Mexican logal governments. These are ommitted to save space and are available upon request from the interested reader.

  10. The results with the model including CONC are qualitatively the same and are available upon request from the interested reader.

References

  • Arellano Cadena R (1996) Necesidades de Cambio en las Relaciones Hacendarias Intergubernamentales en México. In: Arellano Cadena R (ed) México Hacia un Nuevo Federalismo Fiscal. Gobierno del Estado de Puebla y Fondo de Cultura Económica, Mexico, pp 121–149

    Google Scholar 

  • Arroyo García F (2001) Dinámica del PIB de las Entidades Federativas de México, 1980–1999. Comer Exter 51(7):583–599

    Google Scholar 

  • Badu Y, Li S (1994) Fiscal stress in local government: a case study of the tri-cities in the Commonwealth of Virginia. The review of black political economy 22(3):5–17

    Google Scholar 

  • Cabello A, Ortiz E (1998) Finanzas de los Municipios de los Estados de la Frontera Norte de México. Revista IAPEM 4(40):80–98

    Google Scholar 

  • Chamboux-Leroux J (2001) Efectos de la Apertura Comercial en las Regiones y la Localización Industrial en México. Comer Exter 51(7):600–609

    Google Scholar 

  • Corona Vázquez R (1991) Principales Características Demográficas de la Zona Fronteriza del Norte de México. Front Norte 3(5):141–156

    Google Scholar 

  • Courchene T, Díaz Cayeros A (2000) Transfers and the nature of the Mexican Federation. In: Giugale M, Webb S (eds) Achievements and challenges of fiscal decentralization: lessons from Mexico. The World Bank, Washington DC, pp 200–236

    Google Scholar 

  • Cruz Piñeiro R (1990) Mercado de Trabajo y Migración en la Frontera Norte: Tijuana, Ciudad Juárez y Nuevo Laredo. Front Norte 2(4):61–93

    Google Scholar 

  • Díaz Cayeros A, McLure C (2000) Tax assignment. In: Giugale M, Webb S (eds) Achievements and challenges of fiscal decentralization: lessons from Mexico. The World Bank, Washington DC, pp 177–199

    Google Scholar 

  • Ganster P (1998) La Región Fronteriza entre Estados Unidos y México. Border PACT report: http://www.borderpact.org/

  • Guillén López T (1996) Gobiernos Municipales en México: Entre la Modernización y la Tradición Política. El Colegio de la Frontera Norte y Miguel Angel Porrúa, Mexico

  • Hsiao C (1999) Analysis of panel data. Cambridge Univ. Press, Cambridge, UK

    Google Scholar 

  • Ibarra Salazar J (2003) Dependencia Financiera en las Participaciones Federales de los Estados Fronterizos Mexicanos. Front Norte 15:87–123

    Google Scholar 

  • Ibarra Salazar J, Sandoval Musi A, Sotres Cervantes L (2001) Participaciones Federales y Dependencia de los Gobiernos Municipales en México, 1975–1995. Invest Econ 61(237):25–62

    Google Scholar 

  • Indetec (2000a) Criterios de Distribución de Participaciones Federales a Municipios de las Entidades Federativas para 2000. Revista Hacienda Municipal 72:66–93

    Google Scholar 

  • Indetec (2000b) Criterios para la Distribución de Participaciones Federales a Municipios por las Entidades Federativas para 2000. Revista Hacienda Municipal 73:84–108

    Google Scholar 

  • Kirchgassner G (2001) The effects of fiscal institutions on public finance: a survey of the empirical evidence. In: Winer S, Shibata H (eds) Political economy and public finance. Edward Elgar and the International Institute of Public Finance, Cheltenham Northampton, pp 145–177

  • Margáin E (1999) Globalización y Desarrollo Sustentable en la Frontera de México y Estados Unidos. Comer Exter 49(10):871–877

    Google Scholar 

  • Marmolejo F, León F (1998) La Educación Superior en la Frontera México-Estados Unidos. Border PACT report: http://www.borderpact.org/

  • Mendoza Cota E (2001) Specialization, agglomeration and urban manufacturing growth in the northern border cities of Mexico. J Borderl Stud 16(2):71–83

    Google Scholar 

  • Mendoza Cota E, Martínez G (1999) Globalización y Dinámica Industrial en la Frontera Norte de México. Comer Exter 49(9):795–806

    Google Scholar 

  • Mercer T, Gilbert M (1996) A financial condition index for Nova Scotia municipalities. Gov Finance Rev (October):36–38

  • Merino G (2001) Federalismo Fiscal: Diagnóstico y Propuestas. Gaceta de Economía, Primavera, pp 145–185

  • Musgrave R, Musgrave P (1980) Public finance in theory and practice, 3rd edn. McGraw-Hill, Tokyo

    Google Scholar 

  • Ordóñez Barba G (1995) Finanzas Públicas y Estructura Administrativa: Bases para la descentralización de los Municipios Fronterizos del Norte de México. In: Guillén López T, Ordóñez Barba G (eds) El Municipio y el Desarrollo Social de la Frontera Norte. El Colegio de la Frontera Norte, Mexico, pp 133–175

    Google Scholar 

  • Ortiz Ruiz M (1996) La Mecánica de la Distribución de Participaciones en Ingresos Federales a los Estados y Municipios (Un Ejemplo Numérico). Instituto para el Desarrollo Técnico de las Haciendas Públicas, Guadalajara

  • Poterba J, von Hagen J (1999) Fiscal institutions and fiscal performance. Chicago Univ. Press and NBER, Chicago

    Google Scholar 

  • Sánchez Almanza A (2000) Marginación e Ingreso en los Municipios de México. Universidad Nacional Autónoma de México y Miguel Angel Porrúa, Mexico

  • Stine W (1994) Is local government revenue response to federal aid symmetrical? Evidence from Pennsylvania county governments in an era of retrenchment. Natl Tax J 47:799–816

    Google Scholar 

  • Unikel L (1976) El Desarrollo Urbano de México: Diagnóstico e Implicaciones Futuras. El Colegio de México, Mexico

    Google Scholar 

  • Zepeda Miramontes E (1992) El Gasto Público en la Frontera Norte. Front Norte 4(7):5–43

    Google Scholar 

Download references

Acknowledgements

The authors would like to thank Lida Sotres Cervantes for superb work in constructing the data set employed in this article and to Cynthia J. Brown and José de Jesús Salazar for helpful discussions on this subject. We also acknowledge several useful comments from an anonymous referee and from Prof. Roger R. Stough, Editor of this journal. The usual disclaimer applies. The authors acknowledge financial support from the “Cátedra de Investigación del Tecnológico de Monterrey: Agenda Económica de la Frontera Norte de México” (Research Group on the Economic Agenda of Mexican North Border sponsored by Monterrey Tec.).

Author information

Authors and Affiliations

  1. Department of Economics, Tecnológico de Monterrey, Campus Monterrey, Av. E. Garza Sada 2501 Sur, Monterrey, NL, 64849, Mexico

    Jorge Ibarra Salazar

  2. Department of Economics and Finance, University of Texas-Pan American, 1201 West University Dr., Edinburg, TX, 78541-2999, USA

    André Varella Mollick

Authors
  1. Jorge Ibarra Salazar
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. André Varella Mollick
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jorge Ibarra Salazar.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Ibarra Salazar, J., Mollick, A.V. Mexican northern border municipalities, financial dependence and institutions. Ann Reg Sci 40, 859–874 (2006). https://doi.org/10.1007/s00168-005-0036-4

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00168-005-0036-4

JEL Classification

  • R5
  • H7