The Political Economy of Social Spending by Local Government: A Study of the 3×1 Program in Mexico

Abstract

Social spending by central governments in Latin America has, in recent decades, become increasingly insulated from political manipulation. Focusing on the 3x1 Program in Mexico in 2002-2007, we show that social spending by local government is, in contrast, highly politicized. The 3x1 Program funds municipal public works, with each level of government – municipal, state, and central – matching collective remittances. Our analysis shows that 3x1 municipal spending is shaped by political criteria. First, municipalities time disbursements according to the electoral cycle. Second, when matching collective remittances, municipalities protect personnel salaries, instead adjusting budget items that are less visible to the public such as debt. Third, municipalities spend more on 3x1 projects when their partisanship matches that of the state government. Beyond the 3x1 Program, our findings highlight the considerable influence that increasing political and economic decentralization can have on local government incentives and spending choices, in Mexico and beyond.