Determinants and Consequences of Bailing Out States in Mexico

This paper identifies and analyzes the determinants and consequences of bailing out states, in particular, those observed in Mexico. This case is important because lessons can be obtained for other LDCs. Bailouts of lower-level governments have not been the object of much research in economics. This work suggests that the explicit generalized bailout carried out by the federal government in Mexico in 1995 created a moral hazard problem. The existing institutional-legal framework is not adequate, because it provides incentives for states to borrow and for banks to lend without evaluating the risk of the project. Likewise, the importance of the state (size) is a major determinant in providing bailout transfers. Also, the more a state government is in fiscal need when the state government is incapable of adjusting its expenditure, the more likely the state is to get an extraordinary transfer during the period of study. On the other hand, political variables are not an important determinant of a bailout, except, perhaps, when there are state elections. We also show that excessive indebtedness of local states may have equity implications as well: bailouts tend to be highly regressive, as the poorer –low indebted- states receive much less in extraordinary resources.

Explaining Institutional Change: Why Elected Politicians Implement Direct Democracy

In existing models of direct democratic institutions, the median voter benefits, but representative politicians are harmed since their policy choices can be overridden. This is a puzzle, since representative politicians were instrumental in creating these institutions. I build a model of direct democracy that explains why a representative might benefit from tying his or her own hands in this way. The key features are (1) that voters are uncertain about their representative's preferences; (2) that direct and representative elections are complementary ways for voters to control outcomes. The model shows that some politicians benefit from the introduction of direct democracy, since they are more likely to survive representative elections: direct democracy credibly prevents politicians from realising extreme outcomes. Historical evidence from the introduction of the initiative, referendum and recall in America broadly supports the theory, which also explains two empirical results that have puzzled scholars: legislators are trusted less, but reelected more, in US states with direct democracy. I conclude by discussing the potential for incomplete information and signaling models to improve our understanding of institutional change more generally

1. Introduction The Core Voter Model: Evidence From Mexico 1

This paper provides a theory of clientelism and the logic of vote buying, testing it with empirical evidence from Mexico. We build on existing theories of distributiv

The politics of public spending -- Part II. The Programa Nacional de Solidaridad (PRONASOL) in Mexico. Alberto Diaz-Cayeros and Beatriz Magaloni

This paper analyzes the social impact and political underpinnings of Pronasol. A companion paper discusses the theoretical literature on the politics of public spending, which make poverty alleviation programs and, in particular, public service delivery to the poor, affected by political considerations. The next section measures the social impact of Pronasol in the provision of local public services-the most important component of the program. That analysis reveals that the social impact of Pronasol was fairly limited. The section after that addresses some political explanations that account for such limited impact, including a discussion of clientelism and pork barrel politics in Mexico. We then report on our ongoing research on the political determinants of the allocation of Pronasol funding. The timing of expenditure responded to the federal electoral cycle; and the allocation of funds was determined by the competitiveness of electoral contests and the partisan identity of local executives. Specific funds were devoted to clientelism, targeted according to the partisan loyalty of municipalities and a logic of risk hedging to Although Colosio was murdered months before the election, the main strategies of the campaign were already in place by the time his substitute, Ernesto Zedillo, took over the candidacy. Moreover, Zedillo was Colosio's campaign manager, so there is no reason to believe that he would have modified decisions concerning the allocation of PRONASOL funds that Colosio made with the minister in charge of SEDESOL, Carlos Rojas. Colosio and Rojas were in fact close collaborators. President Carlos Salinas has acknowledged that Colosio's first choice as a campaign manager was, quite fittingly, Rojas; however Salinas himself advised Colosio to keep Rojas in t..