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Stabilization of Federal Transferences: A Proposal for the Mexican Federal Entities Based on the Economic Cycle

Author

Listed:
  • Felipe de Jesús Fonseca Hernández

    (Universidad de Guadalajara, Guadalajara, Jal. Mexico.)

  • Juan Carlos Chávez Martín del Campo

    (Universidad de Guadalajara, Guadalajara, Jal. Mexico.)

  • Ricardo Rodríguez Vargas

    (Profesor de cátedra, Instituto Tecnológico de Estudios Superiores de Monterrey (ITESM), Campus Aguascalientes, Aguascalientes, Ags. Mexico.)

Abstract

We propose an instrument to smooth the cyclical fluctuations of federal transfers (participaciones) with a rainy day fund mechanism through a stabilization fund. The rule works by means of saving federal transfers (participaciones) during good times in order to smooth the impact of cyclical revenue fluctuations in the business cycle recession phase. Taking into account the three most recent upswings experienced by the Mexican economy since 1993 (1993-1994, 1997-2000 and 2006-2008), the results obtained through a contrafactual scenario show that in the most recent upswing (2006-2008) the Mexican federal entities could have saved —on average— an amount equivalent to 5 per cent of the total revenue they had at the beginning of the 2009 downturn.

Suggested Citation

  • Felipe de Jesús Fonseca Hernández & Juan Carlos Chávez Martín del Campo & Ricardo Rodríguez Vargas, 2013. "Stabilization of Federal Transferences: A Proposal for the Mexican Federal Entities Based on the Economic Cycle," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(1), pages 151-175, January-J.
    • Handle: RePEc:emc:ecomex:v:22:y:2013:i:1:p:151-175
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    More about this item

    Keywords

    sub-national governments; business cycles; rainy day funds; sub-national public finance.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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