God Dies Every Six Years: Politics, Public Finance and Inequality in Mexico

Abstract

The purpose of this study is to investigate the impact of Mexico's political system oneconomic inequality between the 32 states of the federation. Longstanding economicdivergence between states is occurring despite public finance programmes aimed atreducing poverty. These programmes have not helped poor states develop their economies significantly, and many states have stagnated. At the same time, Mexico's "diamond regions" or wealthy states have experienced healthy growth.The aim of this study is to show that it is the formal and informal political institutions thatkeep these programmes from aiding economic development in poor states. A key issue isthe ability of poor states to raise finance, which could induce economic development andgrowth. This is examined in the context of the transition to democracy, with specific focuson political competition. This thesis aims to show the intersections between politics andeconomics in a growth context, bringing together the Mexican political transition literatureand the existing work on subnational economic development.The empirical testing is done with Generalised Method of Moments (GMM), and the statistical analysis is supplemented by correlation and graphical analysis. The influence ofpolitical competition on public finance is tested using ordinary least squares (OLS) andGMM. A GMM calculation is also administered to test the relationship between publicfinance and state wealth.The findings indicate that political influence remains in Mexican public finance. Theresults suggest that the presence of more than one party in state politics coincides withsignificantly higher public finance levels than those found in a single-party state. Theseresults also show that poverty and federal finance are significant determinants of eachother, meaning that there is a vicious circle between federal funding and state wealth. Theimpact of federal finance on state wealth is especially salient where there are no specifiedrules for the spending of the federal money.Finally, some policy suggestions are made. The issues found to require adjustments include the re-election ban, the poor availability of statistical information to decision-makers, and particular details of the federal funding distribution formulae.

Date of Award	1 Aug 2011
Original language	English
Awarding Institution	The University of Manchester
Supervisor	Kunal Sen (Supervisor) & Thankom Arun (Supervisor)