Fiscal Transfers and Property Tax in Mexico

Abstract

This article explores the incentive effects of fiscal transfers —conditional and unconditional— on local revenue collection in Mexico based on data for municipalities in the state of Sinaloa between 1993 and 2008. A simple theoretical model that predicts a negative effect of transfers on local revenues is tested. Using cadastral information, gross added value, local revenue tax and property tax revenues a set of structural revenue collection indicators is built andused to analyze the effect of,both, conditional and unconditional transfers. We employ econometric techniques such as panel data and the gmm estimation method to correct endogeneity. After controlling for demographic factors, population and the index of exclusion, the results show that conditional transfershave generated negative impacts on local tax collection and property tax, being the negative effect higher in the later.