Fiscal coordination and financial dependence of state governments in Mexico
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This paper presents evidence of the effects on subnational financial dependence of the intergovernmental fiscal agreement implemented in 1980. In contrast with a previous study that uses annual time series national data, we use a panel of annual time series (1975-1995) of 31 Mexican states. We propose and estimate three different empirical models using the fixed effects panel data approach. In concordance with previous literature, we find strong statistical evidence that the implementation of the agreement increased financial dependence. The main contribution of this paper is to distinguish the effect of the 1980 fiscal arrangement on every state's degree of financial dependence. © 2010 Public Financial Publications, Inc.