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The technical efficiency of local economies in Mexico: a failure of decentralized public spending

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Abstract

This work analyses the effect of the institutional design of public spending on technical efficiency. The model controls for technical efficiency using institutional variables for earmarked and autonomous revenues and assesses them using two stochastic frontier models. The main findings show that expenditures by Mexican municipalities, regardless of type, reduce the technical efficiency of local production. Results support the Brennan–Buchanan collusion hypothesis that decentralization generates an increase in government spending, but it does not translate to higher social welfare.

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Notes

  1. For the sake of simplicity, municipalities, local governments, and jurisdictions are used flexibly.

  2. The dataset analyzed during the current study is available from the corresponding author upon request.

  3. Some municipalities did not exist in our base period 1993, so 13 new municipalities were collapsed with their origin jurisdictions. Mexico City delegations have another fiscal institutional design, so they were excluded of the analysis. Also, other municipalities were excluded due to the lack of information, all of them belong to the state of Oaxaca.

  4. It follows a normal HDI specification, but changes weights with the public services indexes.

  5. Statistic Moran I’s: P value 0.000 at alpha 0.05.

  6. We split the country in four regions: border, north, center and south.

  7. Results of the idiosyncratic error for Hadri model are different in comparison with the inefficiency error.

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Acknowledgements

We would like to thank Antonio Álvarez Pinilla and Fausto Hernández Trillo for their valuable comments.

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Authors and Affiliations

  1. Pardee RAND Graduate School, 1776 Main Street, Santa Monica, CA, 90401, USA

    Alejandro U. Becerra-Ornelas

  2. Department of Economics, Centro de Investigación y Docencia Económicas, Circuito Tecnopolo Norte 117, 20313, Aguascalientes, AGS, Mexico

    Hector M. Nuñez

Authors
  1. Alejandro U. Becerra-Ornelas
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  2. Hector M. Nuñez
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Correspondence to Hector M. Nuñez.

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Hector M. Nuñez declares that he has no conflict of interest. Alejandro U. Becerra-Ornelas declares that he has no conflict of interest.

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Becerra-Ornelas, A.U., Nuñez, H.M. The technical efficiency of local economies in Mexico: a failure of decentralized public spending. Ann Reg Sci 62, 247–264 (2019). https://doi.org/10.1007/s00168-018-0894-1

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