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Regional Heterogeneity of Preferences and Intergovernmental Transfers

Author

Listed:
  • Raúl Alberto Ponce Rodríguez

    (Institute of Social Sciences, Universidad Autónoma de Ciudad Juárez, Ciudad Juárez 32545, Mexico)

  • Benito Alan Ponce Rodríguez

    (Institute of Engineering and Technology, Universidad Autónoma de Ciudad Juárez, Ciudad Juárez 32545, Mexico)

Abstract

We develop a model with optimal shares of intergovernmental transfers, and we apply a simulation analysis of our model for the case of Mexico. The main outcomes of this paper are as follows: First, we provide optimal shares of intergovernmental funds to be allocated in each state considering the regional distribution of the benefits of local public spending in Mexico. Second, our analysis shows that the regional heterogeneity of preferences across regions should be an important determinant of federal funds allocated to state governments. Third, the current system of finance relies on a tax revenue sharing accord that emphasizes nationwide tax collection issues as the main determinants of intergovernmental transfers and local spending. Our analysis provides a contrast between how fiscal policy is conducted, and feasible choices of policy reform. Fourth, our analysis of simulation identifies winners and losers from policy reform, and so our analysis contributes to a better understanding of the advantages and shortcomings of the current policy of intergovernmental transfers, providing feasible ways to improve the outcomes of subnational government spending.

Suggested Citation

  • Raúl Alberto Ponce Rodríguez & Benito Alan Ponce Rodríguez, 2021. "Regional Heterogeneity of Preferences and Intergovernmental Transfers," Economies, MDPI, vol. 9(1), pages 1-21, March.
    • Handle: RePEc:gam:jecomi:v:9:y:2021:i:1:p:33-:d:514127
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    References listed on IDEAS

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