The Allocation Game in a Federal System. The Influence of Vertically Divided Government on the Allocation of Federal Transfers to the Mexican States

Abstract

Political scientists have largely overlooked the consequences of democratizationon the operation of federations. This article analyzes whether the emergence of party competitionhas transformed intergovernmental relations in Mexico. It explores whethercompetitive elections and vertically divided government, as elements of democratization,have changed fiscal relations between the states and the federal government. The articleuses fixed-effects time-series cross-section models with panel corrected standard errors toestimate the effects of these variables on the allocation of federal unconditional transfers(participaciones) and conditional grants (transferencias or aportaciones) to Mexicanstates during the nineties. The article provides evidence supporting the hypothesis thatdemocratization had an impact on the allocation of financial resources to the states. Thestatistical results suggest that states governed by political parties other than the party ofthe president (PRI) and those electorally competitive received larger increases in conditionaland unconditional transfers than PRI-dominated states or those less competitive.