RESEARCH ACTIVITIES

The interest on fiscal decentralization has not vanished but there is much to learn in terms of its advantages and shortcomings. In recent years, we have been witnessing the emergence of a second generation of theories to explain the phenomenon. While this discussion is certainly encouraging, the mainstream approaches to devolution still offer valuable guidance to understand the factors that shape government behavior. This study recurs to first generation theories to assess the effect of transfers on state spending behavior and its repercussions in terms of fiscal devolution. It builds on the empirical irregularity commonly referred to as the “flypaper effect”. Numerous studies have addressed the issue by deriving impact measures using a wide variety of samples. A common assumption in these models is that the expenditure response to transfers will be the same for all recipients in the sample. The characteristics of each local government can be so divergent that this assumption seems unrealistic. The paper uses a panel of 31 Mexican states to derive impact measures for each entity. The analysis shows that differences in budgetary outcomes do exist and that there is a connection between the magnitude of the response and the income position of the recipient. If the intention is to have a sustainable fiscal decentralization, it would be a mistake to assume that all states behave in the same way.

Espinosa, Salvador (2010) "Decentralization, Budgets and the Challenge of Intergovernmental Coordination: Lessons from Mexico" in Menifield, Charles (ed.), "Public Budgeting around the Globe", Jones and Bartlett Publishers. Chapter 17

Mexico is engaged in an ambitious project to redesign its government institutions. This process, which has come to be known as “The Reform of the State” has ambitious objectives, but it is imperative to understand the flaws and limitations of the existing institutional infrastructure. This book chapter includes three sections. The first section analyzes Mexico’s budgetary system and its link with fiscal decentralization reform. The discussion begins with a review of the structure and operation of the budget system, with particular emphasis on its intergovernmental components. This review allows the reader to gain an understanding of the ways in which federal resources are distributed among state and local governments, as well as the incentives that this distribution creates. The second section analyzes the effects of the current intergovernmental system on state’s financial management. The chapter closes with a reflection on budget reforms that decentralizing countries such as Mexico should introduce to have good fiscal and budgetary performance.

Espinosa, Salvador (forthcoming 2011) “Financing Border Environmental Infrastructure: Where are we? Where to go from here?” SCERP Monograph Series. (Click here to download the pre-publication version).

Work in progress

The following are the research projects in which I am currently working:

Regulatory Harmonization to Promote Investment in Strategic Infrastructure in the U.S-Mexico Border: Comparing the Legal Frameworks (with Joel Mojica) The precarious condition of infrastructure along the border constitutes a threat to the national security and economic development objectives of Mexico and the United States. Historically, governments have participated actively in the financing of strategic border projects though increasing budget constraints have widened the gap between project needs and available funds. This paper argues that additional funds could be channeled to the region through a bi-national mechanism of debt financing. Crafting a mechanism of this nature, however, should be preceded by a careful comparison of the legal frameworks that regulate the issuance of securities in the two countries. This paper focuses on the principles that issuers of securities must follow, and which are aimed at protecting the rights of investors and creditors. The paper compares the Mexican and U.S. legal frameworks in an attempt to start a dialogue on the potential advantages and limitations of regulatory harmonization.

Binational Bonds to Finance Strategic Border Infrastructure in the U.S-Mexico Region: Is There a Case for Regulatory Harmonization? Ever since NAFTA was enacted, trade between Mexico and the United States has increased exponentially. Since most of the exchanges of merchandise and people occur by land, the need for adequate infrastructure has become evident. These types of projects have traditionally been financed by the public sector. However, increasing budget constraints in both countries make it necessary to explore alternative ways to raise the required funds. Can one think about local governments from the two countries issuing an infrastructure bond jointly? It is argued that proper regulatory harmonization would make this possibility likely. This paper builds a case for harmonization by elaborating on a line of research suggesting that common-law countries (e.g. United States) generally have the strongest, and French-civil-law countries (e.g. Mexico) the weakest, legal protection of investors . The paper reviews the rules aimed at protecting securities holders in Mexico and the United States and argues that while some of these rules may have the same objective, they affect investors’ perceptions of risk differently. Therefore thinking about regulatory harmonization should not be conceived as a process to homogenize the existing legal frameworks but as a process to enact regulations that, while different, would induce similar behavioral responses from Mexican and US investors. This theoretical reflection intends to start a dialogue on the reforms that policymakers could enact to move towards the creation of a bi-national debt financing mechanism for strategic infrastructure in the U.S.-Mexican border.

Transfers and government spending behavior: The Case of Baja California: Many developing countries are engaged in ambitious processes of public sector reform. Fiscal decentralization, which entails the transfer of tax and spending responsibilities from the central government to state and municipalities, remains a core component in these efforts. This research will enhance our understanding of the factors that may hinder the outcomes of decentralization. The project will gather information from a network of experts and government officials in the state of Baja California (Mexico) by using a stratified-chained reputational sampling technique. The information to be gathered in this pilot study will serve to generate hypotheses about the factors that contribute to shape fiscal behavior. The results will be used to develop a comprehensive protocol to analyze the institutional structure of Mexican federalism as well as the ways in which federal transfers affect the decisions and budget outcomes of state and local governments

Other publications

Espinosa, Salvador (2009); "Institutions in the U.S.-Mexico Border"; Working paper prepared for The U.S.-Mexico Border: A Discussion of Subnational Policies Tempe, AZ. June 17-18, 2009 (In Preparation for the XXVII Border Governors Conference in Monterrey, NL, Mexico). COLEF/Woodrow Wilson Center (The materials used in the presentation are available in the "Archive" section of this website.

Last update: May, 2011

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