The External Dimension of Subnational Fiscal Autonomy: Insights from the Mexican Case

Abstract

Subnational politics and federal relations are an increasingly studied aspect of Latin American federation. However, much of the literature neglects the importance of external economic conditions for the study of these phenomena and tends to reinforce the bias towards methodological nationalism implicit in most of the studies. This paper provides a first approximation to the analysis of the interdependence of global processes with subnational politics, while avoiding “non-institutional” as well as “non-spatial” thinking at the same time. It proposes the concept of subnational fiscal autonomy, defined as the discretionary amount of subnational revenue, in order to observe and analyze the multi-dimensional effect of external economic conditions on subnational politics in particular and federal relations in general. Using panel data for the period from 1990 to 2012, the paper offers a quantitative analysis of the causes of the variation in subnational fiscal autonomy in Mexico. The results show that one can expect significant effects of changing external economic conditions on subnational fiscal autonomy during this period. The paper proposes a framework to interpret these effects. The results of this study provide insights for further studies of subnational politics, federal relations and the potential of subnational governments to pursue policies to reduce inequality.