The Effects of Corruption on Budgeting and Financial Management in Mexican Local Governments

Gabriel Puron-Cid and Heidi Jane M. Smith
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Gabriel Puron-Cid: Department of Public Administration - Centro de Investigacion y Docencias Economicas, A.C. (CIDE)
Heidi Jane M. Smith: Department of Economics, Universidad Iberoamericana

Working Paper Series Sobre México from Sobre México. Temas en economía

Abstract: Motivated by high-profile subnational fiscal crises linked to corrup-tion—such as Coahuila’s debt buildup under Governor Humberto Moreira—this chapter examines how corruption is associated with the fiscal condition of Mexican municipalities within a multi-level governance setting. Using a panel of 92 municipalities and 28 states (2018, 2019, 2021; 277 observations), the study relates survey-based corruption victimization measures to a latent municipal fiscal condition construct grounded in a financial sustainability frame-work. The empirical strategy uses structural equation modeling (SEM) with a Multiple Indicators, Multiple Causes (MIMIC) specifi-cation to estimate correlations between corruption (municipal and state) and fiscal condition while incorporating key socio-economic controls, without claiming causality. Results indicate a nuanced pat-tern: municipal corruption is negatively but not significantly associ-ated with fiscal condition, whereas state-level corruption shows a positive association with the latent fiscal condition measure, along-side evidence consistent with spillovers between state and municipal corruption. The analysis underscores the importance of embedding financial indicators in their socio-economic context and highlights policy levers focused on oversight, transparency, and capacity building to mitigate corruption risks in subnational public financial management.

JEL-codes: D73 H72 H77 (search for similar items in EconPapers)
Date: 2026-02-27
New Economics Papers: this item is included in nep-dev
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