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Journal of Comparative Economics 47 (2019) 396–415
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Journal of Comparative Economics

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Government reactions to private substitutes for public goods:

T
Remittances and the crowding-out of public finance
Christian Ambrosiusa,b,
⁎
a
Freie Universität Berlin, Institute for Latin American Studies & School of Business and Economics, Rüdesheimer Str. 54-56, 14197 Berlin, Germany
b
Universidad Nacional Autónoma de México, Faculty of Economics, Coyoacán, Circuito Interior s/n, Mexico City C.P. 04510, Mexico
ARTICLE INFO ABSTRACT
Keywords: Migrant remittances have been praised as an important source of capital for development.
Private remittances However, one aspect that has been relatively neglected so far is: How do governments respond to
Collective remittances the inflow of remittances? This research claims that remittances crowd out public finance, be-
Matching grant schemes cause governments enjoy higher approval rates in the presence of remittances without the need
Public finance
to buy electoral support and face lower pressure for increasing public spending when private
Sub-national finance
Governance
substitutes exist. Empirical evidence for this hypothesis is provided from subnational public fi-
Mexico nances in Mexico, using exogenous variation in migrants’ exposure to U.S. labor market condi-
tions as an instrument for remittances. The panel analysis of trends in municipal budgets reveals
JEL classification:
that state governments responded to the inflow of resources by allocating funds away from
D72
D78 municipalities with a stronger presence of remittances. This is true for private remittances as well
F24 as for collective remittances, i.e. cases in which migrants and public actors jointly finance public
H42 spending via matching grant schemes. The effect is driven by poorer municipalities and is
H72 stronger in states governed by the traditional party PRI that has been associated with a long
H75 history of clientelistic rule.
1. Introduction and theoretical considerations
In parallel to the strong increase in monetary remittances transferred by migrants to their families back home, scholars have
produced a wealth of literature on the impact of migration and remittances on countries of origin over the last two decades (see for
example Yang, 2011 for an overview of the literature). Within that literature, it is broadly shared consensus that remittances have
provided important benefits to migrants’ countries origin. They improve living standards of receiving households directly (e.g. Adams
and Page 2005; Acosta et al., 2008) and benefit local economies indirectly via multiplier effects (e.g. Durand et al., 1996). Above that,
migrants have been found to contribute to public spending in their communities of origin (e.g. Adida and Girod, 2011; Chaudhry,
1989; Kapur, 2010). In 2002, the provision of public goods by migrants has been institutionalized in the form of the Three-For-One
program in Mexico. Under this matching-grant scheme, migrants use collective remittances sent by hometown associations (HTA) as a
lever for obtaining additional spending by municipal, state and federal governments for the financing of public works in their
communities (Aparicio and Meseguer, 2012; Meseguer and Aparicio, 2012; Duquette-Rury, 2014; Garcia Zamora, 2005; Iskander,
2015; Simpser et al., 2016). Variants have been implemented in other countries (e.g. El Salvador, Somalia, Ecuador, Colombia and
Peru, see García Zamora, 2007; cit. in Aparicio and Meseguer, 2012).
⁎
Corresponding author at: Freie Universität Berlin, Institute for Latin American Studies & School of Business and Economics, Rüdesheimer Str. 54-
56, 14197 Berlin, Germany.
E-mail address: christian.ambrosius@fu-berlin.de.
https://doi.org/10.1016/j.jce.2019.02.004
Received 20 June 2018; Received in revised form 5 February 2019; Accepted 11 February 2019
Available online 14 February 2019
0147-5967/ © 2019 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.
C. Ambrosius Journal of Comparative Economics 47 (2019) 396–415
In going beyond these immediate economic effects of remittances on households and communities, this paper joins a relatively
new but growing literature on the broader political and institutional consequences of out-migration and remittances (e.g. Abdih et al.,
2012; Ahmed, 2012, 2013; Barsbai et al., 2017; Doyle, 2015; Escribà-Folch et al., 2015, 2018; Pfutze, 2012; Spilimbergo, 2009;
Tertytchnaya et al., 2018; Tyburski, 2012): How do governments and institutions respond to the presence of remittances? In concrete,
this paper argues that remittances crowd out public finance, for two reasons: On the one hand, governments face lower pressure for
increasing public spending when private substitutes exist. On the other hand, incumbents may be rewarded for the social and
economic benefits arising from remittances, and be punished when remittances decline. This provides an incentive for governments
to divert funds away from constituencies with larger inflows of remittances and to use these resources to back up their political
support where remittances decline. Empirical evidence for this argument is provided from an analysis of municipal finances in
Mexico. In line with the hypothesis that remittances crowd out public spending, states channeled fewer funds towards municipalities
who received a larger share of private remittances or who benefited from collective remittances via the Three-For-One matching
grant scheme. Their net loss is larger than what municipalities gained in additional funds from matching grant schemes.
So far, the scattered literature has come to ambiguous conclusions regarding the effect of remittances on public finances. Several
studies have pointed out that, in principle, remittances could increase public spending. First, remittances potentially affect the size of
government budgets via a wealth effect. Although remittances are usually not taxed directly, their spending and multiplier effects in
the local economy (Durand et al., 1996) increase overall taxable consumption. Value-added taxes have become an important source
of revenue in many developing countries and emerging markets since the 1980s. Singer, (2012) therefore argues that remittances
expand the size of the state, and identifies a positive association between the size of government and the amount of remittances in
developing countries. Second, remittances may function as collateral and facilitate access to borrowing. Analogous to the household
level (e.g. Demirgüç-Kunt et al., 2011; Ambrosius and Cuecuecha, 2016), the securitization of remittances (using future flows of
remittances as security for lending in international capital markets) potentially facilitates access to credit by sovereign borrowers
(Ratha et al., 2008). The latter effect may turn out to be particularly important during periods of economic downturn, due to the non-
cyclical nature of remittances, which may help countries to partly escape the policy constraints imposed by the anti-cyclical character
of international financial cycles (cp. Singer, 2012). Third, the inflow of remittances might incentivize governments to increase quality
and quantity of public services. There are two elements to this argument: On the one hand, migrants might use collective remittances
as a lever for obtaining additional resources from governments. Mexico provides the prominent example of the Three-for-One
Program mentioned above, where every dollar sent by migrants for public works in their communities is matched by an additional
dollar from each of the three layers of government (municipal, state and federal). In addition, private remittances could empower
citizens vis-à-vis their governments and make them more resilient to clientelistic networks and systems of patronage. Tyburski (2012)
and Pfutze (2012) both find evidence for such an effect in the case of Mexico. According to these authors, remittances are associated
with lower corruption (Tyburski, 2012) and a higher probability that the long-time ruling party PRI lost power to the opposition as a
result of eroding clientelistic practices (Pfutze, 2012). Hence, remittances could be associated with a stronger accountability of
governments that should lead to more or better quality provision of public services.
The argument presented here contrasts with these more optimistic views. Rather than crowding-in additional expenditure, re-
mittances lead to a reduction in public spending. For one, remittances may function as a private substitute for the provision of public
services, and therefore reduce the pressure on governments to increase spending. Second, incumbents may enjoy higher approval
rates as a result of the social and economic benefits brought by remittances, whereas they may face political disapproval when
remittances decline. Hence, in the presence of remittances, governments benefit from more positive assessments of their policies
without the need to buy political support via an increase in public spending. This frees government resources that can be reallocated
to assure political support in municipalities where remittances are absent or declining
Both arguments build on findings from previous literature. Research suggests that remittances are partly used for the provision of
public services or close private substitutes and therefore reduce the pressure on governments to provide certain public services (cp.
Singer, 2012; Mosley and Singer, 2015, 295f). As an early example, Chaudhry (1989, 111) claims for the case of Yemen in the 1970s
that remittances generated local resources that reduced the rural communities’ reliance on the provision of public infrastructure such
as roads, electricity, water, clinics, and schools. Using data from Mexican municipalities, Adida and Girod (2011) show that re-
mittances have partly been used for the non-state provision of public goods such as sewer and water systems. Kapur (2010, 119)
argues that remittances from Indian migrants to the state of Kerala reduced the pressures on government-provided facilities because
remittance-receiving families use private health clinics and send their children to private schools.
A couple of studies have argued that public spending responds to remittances. Abdih et al. (2012) and Ahmed et al. (2012)
formalize models where it is less costly for governments to divert resources to assure their own political survival in the presence of
remittances. Cross-country comparisons support their expectation of a negative relationship between remittances and institutional
quality. According to these authors, governments responded to remittances by channeling financial resources away from the delivery
of certain public services such as government transfers, public health care, and school enrollment (Ahmed, 2013; Abdih et al., 2012)
to fund patronage instead (Ahmed, 2012). Doyle (2015) observes that due to the compensation and insurance function of remittances,
Latin American countries with large remittance inflows have reduced social security spending. In Moldova, where schools are public,
Barsbai et al. (2015) observe that in the presence of remittances local governments shifted spending towards items that do not have
private sector substitutes, such as education.
In addition to a lower pressure to provide certain types of public services, research on voters’ preferences also indicates that
incumbents yield political benefits from remittances (cp. Tertytchnaya et al., 2018). Bravo (2012) and Germano (2013) assert that
receivers of remittances were less likely to oppose incumbent politicians in Mexico. Ahmed (2017) argues that remittances-receivers
attribute their higher relative wealth from remittances to incumbents and substantiates this claim for a sample of Latin American
397
countries. The study by Tertytchnaya et al. (2018) pushes this line of research further, building on research on competence mis-
attribution in developing countries (Campello and Zucco, 2015). The authors show that economic evaluations and incumbent ap-
proval in countries of Central Eastern Europe, the Caucasus and Central Asia increased in parallel to remittances, whereas a decline in
remittances had the opposite effect of punishing incumbents. Hence, although the fluctuation of remittances lies largely outside the
control of governments, voters credit incumbents for the arrival of remittances. This provides political leaders with additional leeway
in order to pursue their political agendas. Rational governments are expected to divert funds towards constituencies without re-
mittances where they face higher pressure for public spending and redistribution, and where politicians have to buy electoral support
via increases in public spending.
Whereas several recent studies have addressed government responses to remittances in a cross-country setting (e.g. Abdih et al.,
2012; Ahmed, 2012, 2013; Doyle, 2015; Escribà-Folch et al., 2015; Tertytchnaya et al., 2018), evidence from the subnational level is
rare. To my knowledge, this is the first study to assess empirically how remittances affect indicators of subnational public finance in
Mexico, using a balanced panel of up to 1541 municipalities for the census years 2000 and 2010. Building on the literature discussed
above, Mexican states are expected to allocate less funds towards those municipalities who receive larger amounts of remittances
relative to low-remittance municipalities. Effects should be similar for private and collective remittances channeled via the Three-For-
One matching grant schemes. Both generate social benefits that may be credited to incumbents. In the case of private remittances,
benefits arise from direct welfare gains among households as well as from multiplier effects in the local economy. In the case of
collective remittances, benefits accrue to communities in the form of private contributions to public investments and infrastructure.
Both should raise approval rates of incumbents and allow them to decrease spending in relative terms without the risk of losing
political support. Following the argument by Tertytchnaya et al. (2018), the opposite mechanisms is expected in municipalities where
remittances decline (i.e. decreasing popularity of incumbents).
Whether and how party identities at the municipal level condition the response to remittances by states is not evident. In the
specific empirical setting of municipal finances in Mexico, voters could reward (or punish) either state governments, municipal
governments or both for the increase (or decline) of remittances. This leads to different scenarios. If municipal governments are
rewarded for increasing remittances and punished for falling remittances, we should see a stronger diversion of funds if the same
party holds power at both the state and the municipality level. The reason is that in this case, state governments need fewer resources
to raise popularity of local incumbents of their own party, if remittances increase. This frees resources to support incumbents of their
own party elsewhere. If, on the other hand, municipal governments belong to a different party than the state government and
remittances decline, the opposition party would bear the political costs. In this case, state governments would have few incentives to
increase funds as a response to declining remittances. If voters credit state governments (or the federal government) rather than
municipal governments for the arrival of remittances (or their decline), the party identity at lower-level governments should not play
an important role.
Mexico constitutes an ideal laboratory for studying the impact of remittances on public finance for several reasons. For one, the
U.S.-Mexican migration and remittances corridor is the largest in the world. Mexico was the fourth-largest receiver of remittances in
absolute terms in 2015, after India, China and the Philippines (Ratha et al., 2016). Remittances contribute to 2% of GDP (ibid.) and
up to 9% in the Mexican states with the highest out-migration rates (Banxico, 2016). An estimated 13 million Mexican-born im-
migrants live in the U.S. (Ratha et al., 2016), corresponding to roughly ten percent of the population of Mexico. Second, subnational
finance in Mexico provides an interesting setting to explore the political economy of remittances and public spending. According to
Simpser et al. (2016: 69, based on INEGI data), municipal spending made up 7.5% of total public expenditure in Mexico in 2010.
Municipalities receive most of their funding from states, the next higher administrative unit. Although fiscal rules exist at the level of
states, these leave room for policy discretion that allow states to pursue political objectives in the allocation of funds (cp. Hernández
Trillo and Jarillo Rabling, 2007; Simpser et al., 2016; Timmons and Broid, 2013). Third, the availability of detailed panel data at the
level of Mexican municipalities and variations on key variables can be exploited in the empirical strategy. Mexican migration varies
in both intensity and destination across Mexican regions, providing large variation on the explanatory variables. The emergence of
different migration corridors, and, as a result, differences in exposure to labor market conditions at U.S. destinations is used for the
construction of instruments. This offers an opportunity to solve the endogeneity of remittances and to estimate causal effects. Finally,
Mexico is a pioneer in co-financing projects. The existence of institutionalized matching funds schemes allows investigating the
response of subnational finance to the existence of co-funding arrangements, one of the channels through which remittances po-
tentially affect public finance.
The rest of the paper is organized as follows. The next Section 2 explains the identification strategy and describes the data
employed in this research. In order to solve the endogeneity of the explanatory variables, the empirical strategy exploits the fact
that different migrant corridors have emerged historically between Mexican states of origin and U.S. states of destination. The
exposure of migrants to exogenous conditions in U.S. labor markets along these corridors are used as an instrument for re-
mittances, next to a large number of control variables at the municipal and state level as well as municipality fixed effects.
Section 3 estimates the causal impact of remittances on trends in municipal finance as obtained from an instrumental strategy.
Both private and collective remittances have a strong negative effect on the size of municipal budgets. This effect holds across a
large number of different specifications and robustness checks. Section 4 evaluates the interacted effects of remittances with
political and social variables in order to assess several hypotheses related to the political economy of remittances and public
finance. Whereas shared partisanship at different levels or upcoming elections do not have a statistically significant effects,
states governed by the PRI – the dominant party with a long history of clientelisticic rule - responded stronger to the inflow of
remittances compared to PAN states. Moreover, the effect is largely driven by poorer municipalities. The final section concludes
and highlights implications of these findings.
398
2. Empirical strategy and data
This paper tests the effect of remittances on municipal budgets, for a panel of up to 1541 Mexican municipalities, for the years
2000 and 2010.1 Federal transfers account for the lion's share of municipal budgets, contributing on average to 83% (2000) and 82%
(2010) of total budgets.2 Federal transfers are channeled towards municipalities via the respective state governments and can be
differentiated into unconditional federal transfers or ‘participaciones’ and conditional federal transfers or ‘aportaciones’ which are tied
to specific spending.3 In principle, the channeling of funds towards municipalities follows pre-established formulas that consider
geographic, historical, and distributional criteria, as defined in the Fiscal Coordination Act (Ley de Coordinación Fiscal) (see
SEGOB, 2011, 26). Criteria for the distribution of federal transfers towards municipalities differ between the 32 Mexican states.
Transparency and accountability with respect to the distribution of these funds may vary at the subnational level (Gibson, 2013;
Snyder, 2001; cp. Simpser et al., 2016, 65), providing public authorities with policy discretion in allocating funds to municipalities.4
The dependent variable is growth rates of total municipal per capita budgets over the previous two years. This indicator is chosen
for two reasons. For one, recent trends are preferred over levels due to the long ten years gap between the census years 2000 and
2010. Explaining the effect of remittances on recent trends reduces possible noise over such a long time period and is more reliable
than an estimate of levels. Second, several important reforms of financial decentralization have been undertaken in the 1990s and
2000s that went hand in hand not only with an increase in municipal budgets, but also came with new instruments that make an
analysis of different sub-items problematic. For example, conditional transfers (aportaciones) were introduced only in 1998
(Hernández Trillo and Jarillo Rabling, 2007). Hence, zero values for most municipalities before 2000 forbid calculating growth trends
for conditional transfers. Trends in total municipal budgets rather than trends for specific sub items are more comparable over
different periods. Results excluding own revenue and debt will also be provided to highlight that it is transfers received from states
towards municipalities – the bulk of municipal revenue - that drive the trends in budgets. Levels of municipal budgets were of a
magnitude of 1760 Mexican pesos (MXN) per capita in 2000 and 3580 MXN in 2010, measured in constant 2010 values (corre-
sponding to roughly 142 USD and 290 USD at the end-of-2010 exchange rate), whereas average growth of municipal per capita
budgets was 52% between 1998 and 2000, and −2% between 2008 and 2010. For an illustration of changes in municipal budgets
across municipalities, see the map in Fig. 1.
The share of the population in a municipality that reported having received private remittances has been constructed using microdata
from an extended questionnaire that surveyed 10% of the population from the 2000 and 2010 census (INEGI, 2015a,b), which was
designed to be representative at the municipal level.5 Fig. 1 depicts the change in the share of remittances-receivers on a map. In addition
to the indicator of private remittances, the paper uses data for collective remittances from the Three-For-One program as an alternative
explanatory variable. Three-For-One data comes originally from SEDESOL.6 Because the program only started to operate in 2002, all
municipalities had zero values in 2000. About 40% of the 1541 municipalities considered in the main section had benefitted from the
Three-for-One Program in either 2009 or 2010. According to Duquette-Rury (2014), the Mexican Three-For-One Program budget had
reached $1.7 billion in 2008, of which one quarter were financed by migrant clubs and three quarters by the three layers of government.
Although the amount may appear relatively small compared to the annual 25 billion USD private remittances to Mexico (Ratha et al.,
2016), its importance for municipal budgets is by no means negligible. Duquette-Rury (2014) emphasizes that the Three-For-One Program
was second in the national welfare budget only to the national conditional cash transfer programs, and, for many municipalities, the
matching funds and collective remittances represent a significant share of their local public works budget.
The main empirical challenge in estimating a causal effect of remittances on public finance lies in the fact that municipal budgets
are determined by local social and economic conditions, but these conditions in the regions of origin are also a main factor in
explaining both migration and remittances: poor economic prospects in the regions of origin are a driving force for out-migration,
while the economic situation of family members back home is also an important explanatory variable for the sending of remittances.
1
Out of a total number of 2,456 municipalities. Municipalities are dropped that did not report data on public finances for the current and previous
two years, as well as extreme outliers with growth rates of their total per capita budgets of more than 500%.
2
In addition to federal transfers, municipalities may also receive their own revenues in the form of local taxes on real estate, from the issuance of
permits (for construction, water usage and supply, among others), service provision (for land and real estate registries, land division into lots, among
others), and from fines that can be charged by municipalities (cp. SEGOB 2011). On average, these local sources constituted around 10% of
municipal revenues both in 2000 and 2010. New loans accounted for 2.2% of municipal revenue in 2000 and 3.3% in 2010, on average. Additional
revenues may include, among others, other third-party financing (INEGI 2009, 65f).
3
On average, unconditional transfers made up 30.5% of all municipal revenue in 2000 and 41.2% of all municipal revenue in 2010. On average,
conditional transfers amounted to 50.6% of municipal revenue in 2000, and 39.3% of municipal revenues in 2010.
4
While available research points to considerable discretion in the distribution of subnational finance (Hernández Trillo and Jarillo Rabling 2007;
Simpser et al. 2016; Timmons and Broid 2013), political biases in the allocation of federal transfers to municipalities is still an under-researched
topic for the case of Mexico. Many municipalities are of small size. For these, reliable information on demographic and social data is only updated
every five (Conteo de Población y Vivienda) or 10 years (Censo General de Población y Vivienda). The lack of data needed for a formula-based
distribution of federal funds together with variation in accountancy at the sub-national level should provide public authorities with important
discretion in allocating funds.
5
Remittances are measured as the share of persons in a municipality that declared having received remittances and has been created from the
original census data. CONAPO (2002, 2012) provides an indicator of the share of households that receive remittances. Although closely correlated,
instruments were weaker for the latter indicator.
6
Data on the Three-For-One Program has been generously shared by Lauren Duquette-Rury.
399
Fig. 1. Changes in the share of persons receiving remittances and changes in per capita municipal budgets (2000 and 2010). The map illustrates
change in the share of persons receiving remittances (left) and change in municipal budgets per capita (right) between 2000 and 2010. Darker
shades indicate stronger increase in the share of remittances-receivers and in municipal budgets. Areas in white are omitted due to lack of data.
Inferences based on simple correlations between indicators of public finances and levels of remittances most probably suffer from
selection bias.
In order to solve concerns of endogeneity, the empirical strategy follows previous studies that have used conditions in the
destination country as an instrument for remittances (Adams and Cuecuecha, 2013, 2010; Ambrosius and Cuecuecha, 2016;
Anzoategui et al., 2014). The predicted value calculated from a first step regression of labor market conditions on remittances is used
as the clean explanatory variable to estimate the causal effect of remittances on public finance in a second step regression.
The basic idea underlying the identification strategy is that the amount of remittances is affected by supply side factors related to
labor markets in the country of destination. At the same time, exposure to labor market conditions varies for different Mexican states.
Over time, a variety of migration and remittance corridors have emerged across Mexico. Due to network effects that reduce costs of
migration, these corridors are characterized by strong path dependencies and change only slowly over time (McKenzie and
Rapoport, 2007). For example, migration networks in the Northern states date back to the recruitment of Mexican labor for railway
construction in the 1920s, and later the ‘bracero’ program of labor recruitment from the 1940s to the 1960s. In contrast, migration
networks that emerged in the central and southern states have a more recent origin, registering strong outward movements in the
1990s and 2000s in the context of structural changes within the Mexican agricultural sector (cp. Durand et al., 1999). The existence of
different migration and remittances corridors allows to calculate weighted indicators for the exposure to exogenous labor market
shocks for each Mexican states, depending on the geographical distribution of its Diaspora across the U.S. The Institute for Mexicans
Abroad, IME (2008)7 provides data on consular documents that were requested by individuals from Mexican state j who lived in U.S.
state k in 2008. This data can be used to approximate different migration corridors between 32 Mexican states and 50 U.S. states.
Two different indicators of labor markets are used as exogenous instruments for explaining remittances to Mexico. A first in-
strument is created from recent changes in the levels of unemployment in U.S. states where Mexican migrants reside. In order to
capture regional exposure to U.S. labor markets, the level of unemployment in U.S. state k in year (t 3) is subtracted from the level
of unemployment in U.S. state k in year t. In order to generate variation for each Mexican state j at time t, unemployment levels in
U.S. states is multiplied by the percentage share of consular documents that were requested by individuals from Mexican state j who
lived in U.S. state k in 2008 from IME (2008). Whereas the years before 2000 were characterized by an average reduction of
unemployment, the subprime crisis in 2007/2008 led to an increase in unemployment that also impacted labor demand for Mexican
migrants via a decline in construction and other sectors that employ a large number of migrants. Remittances to Mexico temporarily
dropped after 2007 by more than 19% (Banxico, 2016). Note that the IME (2008) data is intentionally left without variation so that
all time variation in the created variable is due to fluctuations in unemployment levels. This variable is called DUSEMP.8
7
The suggestion of using IME data to construct instruments comes from Alfredo Cuecuecha. See Ambrosius and Cuecuecha (2016) for an ap-
plication to Mexican household data.
8
The indicator of a change in unemployment rates over the previous three years proved to be empirically strongest, although other indicators (for
example, employment creation over the previous four or five years that also covered the labor market effect of the 2007/2008 financial crisis) gave
similar effects.
400
A second instrument is created from variation in U.S. immigration policies at the state-level. E-Verify is an electronic verification
system that confirms the employment eligibility of workers and is intended to exclude undocumented migrants from formal labor
markets. States with an E-Verify mandate require either public employers and state contractors, or all employers with at least a
certain number of employees, to use E-Verify. Data on E-Verify implementation is taken from Gelatt et al. (2018). Following the same
procedure as above, a different value is created for each Mexican state and year by weighting the share of Mexican migrants from
origin state j that lived in U.S. states k with an E-Verify mandate. States where employers were mandated to use E-Verify for some
hires are coded as 1 and states where E-Verify was mandated for all hires are coded as 2. This second instrumental variables is called
EVERIFY.
In order to provide variation at the level of municipalities, both instruments are multiplied with a time-constant variable at the
municipal level that has been used as an instrument for migration and remittances in cross-sectional research: The distance to the U.S.
border along rail lines (Woodruff and Zenteno, 2007; Pfutze, 2012; Demirgüç-Kunt et al., 2011). Its use in instrumental strategies has
been justified because train lines have been an important factor in explaining the emergence of historical migration routes that last
until present days. Hence, within states, the exposure to changes in labor market conditions is weighted stronger for municipalities
closer to rail lines.9 Figs. 2 and 3 illustrate the instruments graphically. In Fig. 2, darker U.S. states reflect a stronger increase in
unemployment rates in the years prior to 2010, compared to the years before 2000. Mexican municipalities with darker shades reflect
a larger share of migrants living in U.S. states with stronger increases in unemployment. The second map (Fig. 3) illustrates the
exposure to a more restrictive access to labor markets for undocumented migrants. U.S. states with darker colors reflect either partial
or full implementation of E-Verify. Darker Mexican municipalities have a larger share of migrants living in U.S. states that employ E-
Verify.
Equations for the instrumental ordinary least squares regression estimated below take the following form:
REMi, t = 1 + 2 DUSEMPL i, t + 3 EVERIFYi, t + 4 Xi, t + i + ui, t (1)
^
PubFini, t = 5 + 6 REMi, t + 7 Xi, t + i + ui, t . (2)
The first equation (Eq. (1)) uses exogenous variation in changes in unemployment rates (DUSEMPL) and E-Verify mandates
(EVERIFY) in U.S. states where Mexican migrants reside as predictors for remittances (REM). Both instrumental variables have been
multiplied by distance to the border along rail lines in order to provide variation at the municipal level. REM is defined alternatively
as the share of households in a municipality that received private remittances or as a binary indicator specifying whether the
municipality received collective remittances sent through the Three-for-One program. In the second step equation (Eq. (2)), PubFin
stands for changes (growth) in the per capita budgets of municipal governments i over the previous two years. REM ^ are the estimated
values from the first step regression. X is a vector of control variables collected either at the municipal or state level. The subset t
refers to the years 2000 and 2010 for which census data is available. All regressions use municipal fixed effects ν, u stands for the
usual error terms, and β are the estimated coefficients. Control variables in X include a large number of demographic, economic and
political variables, collected either at the state or municipal level. Since all specifications employ municipal fixed effects, only time-
varying indicators are included.
A first set of variables refers to demographic and economic controls that potentially affect municipal budgets. At the state level,
several variables account for economic differences across states. Per capita GDP at the state level (in constant 2005 USD) captures the
different levels of economic development across Mexican states, as does the share of each state's contribution to overall Mexican GDP.
In addition, an indicator on the growth of the manufacturing sector measures controls for industrial activity more specifically, that
could have been affected by the U.S. financial crisis via a trade channel. The indicator is multiplied by distance from the head of
municipality to the U.S. border via rail lines in order to provide municipal variation along historic migration corridors. The aggregate
amount of per capita resources that were allocated by Mexican states to municipalities controls for differences in total resources
available to states. Several indicators on demographic information at the municipal level are also controlled for. These include the
population size of municipalities, the share of households headed by men, average age of household heads, and average years of
schooling of household heads. Two indicators reflect differences in levels of social and economic development of municipalities. An
aggregate indicator of social deprivation (rezago social) is used as a summary statistic on deficiencies in the areas of educational
achievements, access to health services, and living conditions. A poverty headcount measures the proportion of persons in a mu-
nicipality with insufficient income to cover basic nutrition, health and education expenses. In order to identify a separate effect of
remittances while holding levels of international migration constant, the estimations also control for the percentage of dwellings that
reported emigrants during the previous five years, as well as the share of dwellings that reported return migrants during the previous
five years.
A third set of variables refers to party politics and election outcomes at the state and municipality level. Regressions include the
share of the vote for each of the three main parties (PRI, PAN, PRD) at the level of municipalities and dummy variables for the
governing party at the state level. The effect of remittances on municipal finances may operate via changes in party preference and
voting behavior as a result of remittances or migratory movement. Moreover, as Simpser et al. (2016) and Aparicio and
9
The general results are unchanged when using the instrument at the level of states instead of municipalities, but the strength of the instruments is
improved after multiplying with municipalities’ distance to the border via rail lines. Since distance is a time-constant variable, all concerns related to
the cross-sectional instrument are controlled for via municipality fixed effects. Identifying information comes from changes in the labor market
variables alone.
401
Fig. 2. Map of exposure to unemployment increases in U.S. States where Mexican Migrants reside (Instrument DUSEMP). The map illustrates
graphically the instrument DUSEMP. Darker shades of U.S. states indicate a stronger increase in unemployment rates in the years 2007–2010,
compared to the years 1997–2000. Darker shades in Mexican states indicate a stronger exposure of its migrant population to unemployment
increases in the U.S. The indicator is multiplied with distance to rail lines in order to provide variation at the level of municipalities. Areas in white
are omitted due to lack of data. See text for details.
Meseguer (2012) have shown, disbursement of funds from the Three-For-One Program of collective remittances is affected by shared
partisanship at different levels of government. The same could be true for municipal revenue more generally. The regressions
therefore include a binary indicator of whether state and municipality are governed by the same party or not. Finally, two binary
indicators measure upcoming elections in the current or coming year, for municipality elections and state governor elections. The
reason is that political cycles at the subnational level may also affect municipal budgets. See Table 1 for a description of all variables
and summary statistics.
In order for the instrument to be valid, two conditions have to be satisfied. First, labor market conditions in the U.S. have to be a
strong predictor for remittances (instrument relevance) and second, U.S. labor market conditions have to be uncorrelated with
unobserved components in Eq. (2) (instrument exogeneity) (Angrist and Krueger, 2001). Regarding the first condition, employment
conditions are an important supply-side factor in explaining remittances to Mexico. As previous studies have shown, migration and
remittances are responsive to economic conditions in the host countries (for an assessment of the effects of the global financial crisis
on remittances, see for example Inchauste and Stein (2013), Sirkeci et al. (2012) and therefore function as an exogenous source of
variation.
The second condition requires that regional variation in U.S. labor market conditions does not have a (direct) effect on variation
in indicators of municipal finances in Mexico, other than through remittances. Regarding the implementation of E-Verify policies,
immigration policies at the level of U.S. states should not be directly related to variation in municipal budgets within Mexico.
Regarding levels of U.S. unemployment, although overall business cycles might be aligned between Mexico and the U.S, the in-
strument builds on regional variation in labor markets across U.S. states, which should not be related to regional between-state
variation in Mexico. The second condition also holds in the case that remittances respond to changes in household composition (i.e.
return migration), as long as demographic and economic characteristics associated with return migration are controlled for. In
addition, the regressions control for migratory movements directly. Note that all specifications use differenced data, so that all time-
402
Fig. 3. Map of exposure to E-Verify policies in U.S. States where Mexican Migrants reside (Instrument EVERIFY). The map illustrates graphically the
instrument EVERIFY. Darker shades of U.S. states indicate a partial or total implementation of the E-Verify mandate that restricts access to labor
markets for undocumented migrants in 2010. Darker shades in Mexican states indicate a stronger exposure of its migrant population to E-Verify
policies. The indicator is multiplied with distance to rail lines in order to provide variation at the level of municipalities. Areas in white are omitted
due to lack of data. See text for details.
constant differences at the level of states and municipalities as well as overall time trends are controlled for. Under these assumptions,
the instrumented causal effect is independent of local conditions in Mexico. Having two instruments offers the possibility to formally
testing for the exogeneity of the instruments via Sargan over-identification tests, where rejection of the null hypothesis is a sign that
at least one of the instruments is endogenous.
Several additional methodological challenges deserve mention. For one, the fact that remittances and migration variables both
responded to the U.S. labor market shock10 makes it difficult to identify an effect of remittances that operates strictly independent
from migratory movements (cp. Clemens and McKenzie, 2014). Nonetheless, the interpretation focuses on remittances as the driving
force. Theoretical arguments point to an effect for remittances (i.e. the monetary aspects of international migration). It is hard to
imagine how migratory flows could affect public finance other than through changes in demographics, voting behavior and (socio-)
economic indicators that will be controlled for, in addition to direct controls for migratory movements and aggregate economic
variables such as state-level GDP. Second, data on municipal budgets is less reliable for small municipalities. These show the largest
variation in recent trends, a possible sign of larger estimation errors in small constituencies. Regression results will therefore also be
reported including precision weights, where smaller municipalities are given a smaller weight in the regression.
A final concern refers to sample attrition. Data for both periods is available for up to 1541 municipalities out of a total of 2456
Mexican municipalities. The main reason for lack of data is size. For example, the state of Oaxaca alone counts 570 municipalities
with a population size of only several thousand, or less in many cases. Most of these are dropped from the sample because of missing
data. Under the assumption that the fact of lying below a given population threshold is a time-constant factor, truncation bias is
controlled for via municipal fixed effects. In addition to that, a propensity score matching approach is applied. An equal number of
10
Likewise, private and collective remittances move together, responding to labor market shocks in the U.S. in similar ways
403
Table 1
Data description.
Variable Mean [standard dev.] Description
2000 2010
Dependent variable (municipal level)

Municipal budgets growth 0.483 −0.024 Growth in per capita municipal budgets over the period t to t-2a
[0.596] [0.217]
Explanatory variables and instruments (state and municipal level)
Private remittances: REM 2.98 3.3 Share of persons receiving private remittances in each municipalitya
[3.54] [3.9]
Collective remittances: TRESP1 0 0.415 Binary indicator taking the value 1 for municipalities that received collective remittances
through the Three-For-One Program in the current or previous yearg
[0] [0.493]
Instrument: DUSEMP −0.0906 0.492 Change in unemployment rates in U.S. states where Mexican migrants reside, over the period t
to t−3. Unemployment levels are weighted based on the number of consular documents that
were requested by individuals from Mexican state j who lived in U.S. state k in 2008. The
normalized variable is then multiplied by distance from the municipal capital to the U.S. border
via rail linesb,j,k
[0.0799] [0.453]
Instrument: EVERIFY 0 163 Indicator whether U.S. states where Mexican migrants reside employ E-Verify, an electronic
verification system that confirms the employment eligibility of workers. Most states with this
mandate require either public employers and state contractors, or all employers with at least a
certain number of employees, to use E-Verify. Takes the value 1 in states where employers are
mandated to use E-Verify for some hires and takes the value 2 in states where E-Verify was
mandated for all hires. weighted based on the number of consular documents that were
requested by individuals from Mexican state j who lived in U.S. state k in 2008. Multiplied by
distance from the municipal capital to the U.S. border via rail linesi,j,k
[0] [99.9]
Control variables: economic and demographic (state and municipal level)
Age household heads 46.6 49.1 Average age of household heads in each municipalitya
[3.28] [3.39]
Deprivation index −0.352 −0.369 Aggregate indicator of social deprivation (rezago social) based on deficiencies in the areas of
educational achievements, access to health services, and living conditionsh
[0.907] [0.834]
Education 5.11 6.06 Average years of schooling of household heads in each municipalitya
[1.57] [1.69]
Gender 81.2 78.4 Share of households in each municipality whose head is malea
[4.88] [4.73]
Indigenous 81.2 78.4 Share of households in each municipality where at least one member speaks an indigenous
languagea
[4.88] [4.73]
Population size 46,231 56,441 Population size of municipality (logged in regressions)a
[122,550] [143,893]
Poverty 42.2 33.8 Share of persons in a municipality with insufficient income to cover basic expenses for nutrition,
health and education (pobreza de carencia)h
[21.8] [17.7]
GDP share 0.0344 0.0358 Contribution of each state to overall Mexican GDP, in percentc
[0.0261] [0.0247]
GDP per capita 6610 7410 Per capita GDP at the level of Mexican states, in 2005 USDc
[2870] [4890]
Manufacturing 65,900 67,400 Indicator on the growth of the manufacturing sector at state level (baseline 2008 = 100),
multiplied by distance from the head of municipality to the U.S. border via rail linesc,j
[33,500] [31,800]
Total federal transfers 1180 1720 Total amount transferred by states to municipalities, in Mexican pesos, constant 2010 values,
state levele
[188] [263]
Control variables: migration variables (municipal level)
Emigration 6.91 3.32 Share of dwellings in each municipality that reported emigrants during the previous five yearsd
[6.76] [3.4]
Return migration 1.32 3.67 Share of dwellings in each municipality that reported returned migrants during the previous five
yearsd
[1.69] [3.03]
Control variables: election variables (state and municipal level)
PRI 0.453 0.362 Share of votes for the PRI party during last municipal electionf
[0.132] [0.205]
PRD 0.175 0.117 Share of votes for the PRD party during last municipal electionf
[0.166] [0.143]
PAN 0.236 0.264 Share of votes for the PAN party during last municipal electionf
[0.182] [0.185]
PRI (State) 0.727 0.551 Binary indicator whether PAN is holding power at state levelf
[0.446] [0.498]
(continued on next page)
404
Table 1 (continued)
Variable Mean [standard dev.] Description

2000 2010
PRD (State) 0.103 0.273 Binary indicator whether PRD is holding power at state levelf
[0.305] [0.446]
PAN (State) 0.231 0.232 Binary indicator whether PAN is holding power at state levelf
[0.422] [0.422]
Shared partisanship 0.604 0.406 Binary indicator taking the value 1 for shared partisanship at the municipal and state levelf
[0.489] [0.491]
Upcoming election (municipality) 0.391 0.167 Binary indicator taking the value 1 if a municipal election is scheduled for the current or
following yearf
[0.488] [0.373]
Upcoming election (State) 0.265 0.632 Binary indicator taking the value 1 if an election for state governor is scheduled for the current
or following yearf
[0.441] [0.483]
The table gives mean values and standard deviations in square brackets for up to 1541 municipalities that reported data on municipal finance in
both periods.
a
INEGI (2015a,b).
b
USBLS (2014).
c
INEGI (2015d).
d
CONAPO (2002, 2012).
e
INEGI (2015c).
f
CIDAC (2016).
g
Lauren Duquette-Rury, based on SEDESOL.
h
CONEVAL (2017).
i
Gelatt et al. (2018).
j
Woodruff and Zenteno (2007).
k
IME (2008).
municipalities is matched to the 623 municipalities that had received funds from the Three-For-One program in the year 2009 or
2010. This reduces observations to a matched sample of 1246 municipalities. Logistic regression on the propensity of being treated is
used to identify those municipalities that were, on average, most similar to treated municipalities in terms of their pre-treatment
characteristics. See Annex 1 for the estimation of propensity scores and Annex 2 for a graphical summary of standardized mean values
in the matched and unmatched dataset.
3. Results
This section presents an estimate of the causal effects of private and collective remittances on two-year trends in municipal
budgets. In addition to an indicator of the share of the population receiving private remittances, collective remittances are measured
as a binary indicator whether municipalities received collective remittances sent through the Three-For-One program in the current
or previous year. To avoid forbidden regression issues (Hausman, 1975) that may arise from using instrumental techniques with
binary choice models, ordinary least square instrumental regressions will be employed with the binary endogenous variable, fol-
lowing the suggestion of Angrist and Pischke (2008, 143).
Table 2 provides results for the first step regression of migrants’ exposure to labor market conditions (unemployment increases
and labor market restrictions for undocumented migrants via E-Verify) on the share of remittance receivers at the municipality level,
and alternatively on whether municipalities received collective remittances either in the current or the previous year. All specifi-
cations include municipality and year fixed effects. Spec. 2, 3, 5 and 6 use the full set of time-varying controls as described in the
previous section (i.e., variables related to economic and demographic differences, election outcomes, and levels of out-migration and
return migration). Spec 2 and spec. 6 also use weights for population size and the matched subsample only. Annex 3 shows coef-
ficients for control variables too.
Both instruments are strong predictors both for the share of the population receiving remittances in a municipality (spec. 1–3) and
for the probability of having benefitted from collective remittances (spec. 4–6). The fact that the signs of the two instrumental
variables differ may come as a surprise. As expected, the restriction of access to labor markets by undocumented migrants via E-Verify
has a negative effect on the share of households receiving remittances. However, more severe unemployment shocks (DUSEMP) in
U.S. states where Mexican migrants reside affects private and collective remittances positively at the subnational level, while the
labor market shock of the U.S. financial crisis reduced total remittances to Mexico at an aggregated national level. The counter-
intuitive sign for labor market shocks can be explained by the fact that a deterioration in labor market conditions also led to a higher
number of Mexicans returning home (and a smaller number of Mexicans leaving). In fact, net migration figures have been close to
zero in recent times (BBVA Bancomer, 2015). As regressions in Annex 4 confirm, labor market shocks also had a strong and sta-
tistically significant effect on return migration (spec. 1 and 2 in Annex 4). It is noteworthy that the second instrument – im-
plementation of E-Verify policies for undocumented migrants - did not affect return migration significantly (spec. 1 and 3). A possible
reason is that E-Verify is targeted explicitly towards undocumented migrants. Considering the high costs of re-emigration into the
405
Table 2
First step instrumental regression of U.S. labor market conditions on private and collective remittances (OLS, municipality fixed effects).
Private remittances (REM) Collective remittances (TRESP1)
(1) (2) (3) (4) (5) (6)
(Intercept) 0.17 −4.40E-01 −1.1E+00 0.33*** 0.53*** 0.69***

[1.63] [−1.25] [−1.13] [13.1] [8.37] [6.29]
DUSEMP 0.54*** 0.62*** 1.4*** 0.27*** 0.28*** 0.19***
[4.64] [4.65] [4.6] [11.8] [9.73] [3.74]
EVERIFY −0.0009** −0.001*** −0.00049 −0.0005*** −0.0002* −0.00026
[−2.09] [−3.21] [−0.314] [−4.67] [−1.78] [−0.903]
Municipality fixed effects yes yes yes yes yes yes
Socioec. & demograph. ctrls. no yes yes no yes yes
Poltics & and election ctrls. no yes yes no yes yes
Migration ctrls. no yes yes no yes yes
Weighted by pop. size no no yes no no yes
Matched sample no no yes no no yes
R^2 0.02 0.18 0.19 0.09 0.3 0.2
adj. R^2 0.01 0.16 0.17 0.09 0.29 0.19
F-stat 12.49 13.61 11.71 79.89 26.97 12.97
#municipalities 1540 1539 1241 1540 1539 1241
First step instrumental regression of unemployment increases (DUSEMP) and E-Verify policies (EVERIFY) where migrants reside on private and
collective remittances, in 2000 and 2010. See text for an explanation of the instruments. Heteroscedasticity-robust t-values are given in square
brackets. All specifications include municipality and year fixed effects. Control variables refer to the set of variables in Table 1. Stars denote
statistical significance at the 1% (***), 5% (*) and 10% (*) level.
U.S. for undocumented migrants, return to Mexico seems not to be an attractive option for undocumented migrants when they face
worsening prospects of labor market incorporation in the U.S.
Return migration was not accompanied by a weakening of economic links with the country of previous residence. To the contrary,
the data reveals that a relative increase in return rates in 2010 compared to 2000 is associated with a relative increase in the share of
the population receiving remittances compared to municipalities that reported fewer returnees (spec. 4–7). This is true both for
private and collective remittances and suggests that an increase in the share of household receiving remittances after the U.S.
financial crisis is due to return migrants who maintain close transnational ties to family members remaining in the U.S.
A more detailed exploration of how destination country labor market shocks affect return migration, remittances and transna-
tional links lies beyond the scope of the paper. For the present purpose, the instrument is valid as long as labor market shocks are an
exogenous determinant of remittances. This should be true even if labor market shocks affected remittances in an indirect way, i.e.
via return migration. While it is empirically difficult to disentangle migratory movements from monetary transfers, theory suggests
that the monetary aspects of migration – i.e. private and collective remittances - are the driving force behind the results, and not
return migration. This being said, some arguments have been put forward how return migration might affect public finance via
political channels. One view states that return migrants pressure strongly for transparency and accountability of governments
(Batista and Vicente, 2011). Others have observed disengagement of returning migrants from politics (Pérez-Armendáriz, 2014 for
the case of Mexican migrants). Depending on their personal economic situation, returning migrants might also have different pre-
ferences for redistributive policies. A causal interpretation of the coefficient is justified as long as adequate controls are included for
politic variables, next to economic and demographic differences.
The existence of a second instrument (E-Verify policies) that did not affect return migration permits implementing a formal test on the
exogeneity of instruments, by using excess information available in the case of more instruments than endogenous variables. Sargan over-
identification test statistics provided in Tables 3 and 4 support the exogeneity assumption for U.S. unemployment shocks (high p-values do
no justify a rejection of the Null hypothesis of instrument exogeneity). For remaining doubts, Annex 5 shows second step results using only
EVERIFY as an instrument. Table 3 displays second step regression outputs from five different specifications, alternatively for private and
collective remittances. Spec. 1 and 2 show results using municipality and year fixed effects as well as a list of controls for socioeconomic
and demographic variables, as well as for election variables, as described in Table 1. Spec. 3 and 4 add controls for rates of emigration and
return migration. Spec. 5 and 6 weigh observations according to population size, and spec. 7 and 8 use a matched sample following the
procedure described above, where control municipalities are selected based on their average similarity to treated municipalities (i.e. those
who received collective remittances in either 2009 or 2010). Spec. 9 and 10 repeat the latter specifications, but exclude own revenue and
debt from the dependent variables. Coefficients for control variables are not shown due to space restrictions. Magnitude and statistical
significance are similar to the un-instrumented OLS regression with municipality and year fixed effects shown in Annex 6. All specifications
report test statistics for weak instruments, Hausman tests for endogeneity of remittances, and Sargan tests for over-identification (exo-
geneity of instruments). There is no sign for weakness of instruments: All test statistics are above or close to the critical value of 10
(Stock and Yogo, 2002). Strong statistical significance of the Wu–Hausman test statistics confirms the suspicion of endogeneity of both
private and collective remittances and underlines the need for an instrumental approach. As mentioned, Sargan test statistics do not justify
rejection of the Null hypothesis of endogeneity of instruments.
All specifications show a statistically significant negative causal effect of both private and collective remittances on recent trends
in per capita budgets of municipality. The magnitude of crowding-out is strong. In the preferred specifications 7 (full set of controls
406
Table 3
Effect of private and collective remittances on the 2-years’ growth rates in municipal budgets (2nd Step OLS, with municipality fixed effects).
Growth trends total budget growth trends external budget
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
(Intercept) −0.7*** 0.25 −0.6*** 2.2E-01 −0.6*** 3.1E-02 −0.6*** 2.9E-01 −1.1** −0.13
[0.21] [0.19] [0.19] [0.19] [0.2] [0.26] [0.19] [0.42] [0.53] [0.67]
Private remittances (REM) −0.5*** −0.44*** −0.18*** −0.16*** −0.18***
[0.12] [0.11] [0.06] [0.061] [0.062]
Collective remittances −0.9*** −1.1*** −0.77*** −0.96** −1.1***
(TRESP1)
[0.15] [0.2] [0.27] [0.41] [0.38]
Municipality fixed effects yes yes yes yes yes
Socioec. & demogr. ctrls. yes yes yes yes yes
Politics ctrls. yes yes yes yes yes
Migration ctrls. no yes yes yes yes
Weighted by pop. size no no yes yes yes
Matched sample no no no yes yes
Weak instrument F-stat 12.5 78.5 15.7 50.3 15.7 50.3 9.2 51.8 9.22 51.8
Wu-Hausman (p-val) 1.55E-12 1.61E-09 3.47E-10 2.4E-08 3.47E-10 2.37E-08 2.76E-10 2.63E-08 2.2E-07 6.76E-07
Sargan p-val 0.489 0.334 0.722 0.27 0.722 0.27 0.875 0.16 0.794 0.501
#municipalities 1538 1538 1538 1538 1538 1538 1240 1240 1166 1166
Second step instrumental regression of private remittances on two years’ growth rates in per capita municipal budgets in 2000 and 2010. Growth
rates in external budget exclude own revenue and debt. Heteroscedasticity-robust standard errors are given in square brackets. All specifications
include municipality and year fixed effects. Control variables refer to the set of variables in Table 1. Stars denote statistical significance at the 1%
(***), 5% (*) and 10% (*) level.
Table 4
Interacted effects of private remittances (REM) on 2-years’ growth rates in municipal budgets (second step instrumental regression).
Growth trends total budgets
(1) (2) (3) (4) (5) (6) (7)
REM * Same party at both levels 0.0079

[0.042]
REM * State governed by PRI −0.094**
[0.04]
REM * State governed by PAN 0.087**
[0.041]
REM * Mun. elections current/next year −8.60E-02
[0.07]
REM * State elections current/next year −0.0021
[0.02]
REM * Poverty headcount −0.0071*
[0.0037]
REM * Poverty headcount in 2000 −0.0089*
[0.005]
REM −0.18** −7.90E-02 −0.16*** −0.09** −0.17*** 2.70E-02 1.40E-01
[0.08] [0.054] [0.056] [0.044] [0.063] [0.094] [0.15]
Municipality fixed effects yes yes yes yes yes yes yes
Weighted by pop. size yes yes yes yes yes yes yes
Matched sample yes yes yes yes yes yes yes
Control variables (full set) yes yes yes yes yes yes yes
Weak instrument F-stat 6.74 6.24 6.57 9.72 7.52 7.33 7.34
Weak instr. F-stat (interaction) 22.9 18.7 4.96 1.08 49.8 6.64 10.7
Wu-Hausman (p-val) 2.29E-08 2.88E-10 2.48E-08 9.30E-09 2.16E-08 4.29E-11 4.73E-11
Sargan p-val 0.654 0.63 0.0484 0.547 0.821 0.42 0.221
#municipalities 1217 1217 1217 1217 1217 1217 1217
Second step instrumental regression of private remittances and interactions on two years’ growth rates in per capita municipal budgets.
Heteroscedasticity-robust standard errors are given in square brackets. All specifications include municipality and year fixed effects. Control
variables refer to the set of variables in Table 1. Stars denote statistical significance at the 1% (***), 5% (*) and 10% (*) level.
for the matched subsample weighted by population size), a one percentage point increase (decrease) in persons receiving private
remittances, leads to a lower (higher) growth of municipal budgets of a magnitude of 16%. For the case of collective remittances
(specification 8), the effect is even stronger. Growth rates of per capita budgets in municipalities who benefitted from public in-
vestment via the Three-For-One matching grants schemes grew 100% less compared to those who did not.
To illustrate, consider that mean per capita budgets in 2010 were on average 1760 MXN in 2000 and 3580 in 2010. Between 1998
and 2000, per capita budgets had grown by an average of almost 52%, whereas average growth of municipal budgets between 2008
407
and 2010 was slightly negative. Average differences in growth rates were −50% for growth before 2000 compared to growth before
2010. Variation in growth rates was also strong, with a standard deviation of 64% for changes in growth rates prior to 2000 compared
to those prior to 2010. This means that having benefitted from matching funds schemes explains more than 1.5 standard deviations in
the changes of growth rates in municipal finances, and a four percentage point increase in persons receiving private remittances
explains roughly one standard deviation. These effects are estimated holding constant a large number of social, economic and
demographic variables. As shown in Annex 5, the message is similar when using only the exposure to E-Verify policies as an in-
strument for remittances, instead of using two instruments (unemployment shocks and E-Verify policies) simultaneously. The price
for using a single instrument is loss in the strength of some specifications.
A quick back-of-the-envelope calculation indicates that municipalities lost more in terms of overall per capita budgets than they
could have gained from participating in matching funds schemes. The average yearly amount for Three-For-One projects was
250–300 MXN per capita in participating municipalities in 2009 and 2010 (author's calculation based on SEDESOL data). Adding this
to the average budgets of roughly 1760 MXN in 2000 would correspond to ≈17% increase in per capita budgets (or ≈34% for a two-
year period, the reference period for trends in municipal finance). This lies much below the estimated differences in growth rates of
per capita budgets as a result of collective remittances. It should be noted that a negative coefficient does not necessarily mean a
reduction in the level of municipal budgets in remittances-intensive constituencies. The period under study was characterized by
strong average increases in municipal budgets in the context of fiscal decentralization policies of the 1990s and 2000s and the
introduction of conditional transfers (aportaciones) targeted towards the most vulnerable municipalities in 1998, right before the
period under study (Hernández Trillo and Jarillo Rabling, 2007). It seems that these additional resources were predominantly tar-
geted towards municipalities that did not benefit from the inflow of remittances, which may explain the large size of coefficients.
4. Interactive effects
The previous section showed average effects across all Mexican municipalities for which data is available. This section addresses
possible heterogeneity across municipalities via interactive effects with the purpose of evaluating several hypotheses related to the
political economy of allocating funds towards municipalities. A first set of regressions in Table 4 evaluates the role of shared par-
tisanship at the municipal and state level (specification 1). The hypothesis on the crowding-out of public spending from remittances
was motivated by theories postulating that governments are rewarded for increasing remittances, and are punished for declining
remittances (Tertytchnaya et al., 2018). If this is the case, state governments might be more inclined to respond to declining (or
rising) remittances in jurisdictions held by their own parties. If municipalities are held by opposition parties, state governments face
less incentives responding to declining remittances, because in this case, state governments would not bear the political costs of
declining remittances. A second set of regressions evaluates party identity at the state level, motivated by the expectation that
different governments may respond differently to the inflow of remittances, and the fact that decisions on allocating transfers are
taken at the level of states. Between 2000 and 2010, the Mexican political landscape was a three party system. The traditional party
PRI held power for 71 years uninterruptedly from 1921 to 2000 at the national level as well as in most states, an endurance that has
been attributed to a system of patronage and clientelism that deeply penetrated Mexican society and politics (see, inter alias, Levy
et al., 2001; Magaloni, 2006). The presidency was won by the conservative party PAN for the first time in 2000. A third party PRD is
situated at the left of the political spectrum. Due to the association in particular of the PRI with clientelistic practices, a difference in
responses to remittances might be observed for states governed by PRI (spec. 2), compared to those governed by PAN (spec. 3) or
PRD. A third set of regressions evaluates closeness of elections either at the state or municipal level. Evidence on election cycles at the
municipal level (e.g. Sakurai and Menezes-Filho, 2011) suggests that incumbents could be more inclined to re-allocate spending when
elections stand shortly before and they need to assure their political survival. Spec. 4 interacts remittances with upcoming elections at
the municipal level, and spec. 5 interacts remittances with upcoming elections at the state level. A fourth set of interactions assesses
the effect of remittances conditional on socioeconomic conditions, i.e. the change in poverty headcounts (spec. 6) or initial levels of
poverty (spec. 7). All results are estimated from interactions with private remittances, instrumenting for remittances as well as for the
interaction of remittances with political variables (using an interaction of the instrumental variables with political variables) and are
based on the preferred specification using the full set of controls, weights for population size and the matched subsample.11
In general, the signs of interactions with political variables are as expected. Shared partisanship (spec. 1) as well as upcoming
elections (spec. 3 and 4) are associated with a stronger response in terms of reallocation of funds, although the coefficients are not
statistically significant. States governed by PRI (spec. 2) responded stronger to remittances compared to states governed by PAN
(spec. 3). This is in line with the expectation that the PRI's long tradition of clientelistic rule is also reflected in its response to
remittances and a reallocation of budgets in order to assure its political survival. The interaction of private remittances with poverty
headcounts is negative and statistically significant both for initial levels (spec. 8) as well as for changes in poverty headcounts
between 2000 and 2010 (spec. 7). At the same time, the individual effect loses statistical significance. This means that the crowding-
out of municipal finance is strongly driven by municipalities who were initially poorer (had higher poverty headcounts) and those
who registered a lower drop in poverty over the period under study. Hence, the most vulnerable municipalities were most affected by
the reallocation of spending in response to the inflow of remittances.
The interaction term can be interpreted in different ways. Effects of remittances are potentially larger in relative terms among
11
Results for interaction with collective remittance are broadly similar. However, Sargan test statistics indicate that interacted results for col-
lective remittances are more sensitive to the choice of instruments.
408
poor households, where the additional revenue has a higher relative effect on total household consumption. So, both the benefits of
increasing remittances as well as the social (and political) costs of declining remittances are larger in poorer municipalities.
Governments may therefore have a stronger incentive to step in when remittances towards poorer municipalities decline (or to retreat
when remittances increase). The negative sign of the interaction coefficient could reflect a compensating response of governments to
declining remittances in municipalities with high initial levels of poverty or low progress in the reduction of poverty. It could also be
a sign that poorer municipalities are more vulnerable to vote buying and clientelism and therefore invite stronger responses in terms
of reallocation of public budgets.
5. Conclusion
This research claimed that remittances crowd out public finance, an argument that has been motivated by two observations from
the literature: First, remittances may be used to provide public services or close private substitutes that lower the pressure for
increasing public spending in the presence of remittances. Second, governments may claim credit for increasing remittances and be
punished with lower approval rates when remittances decline. This creates incentives for governments to divert funds away from
constituencies with a larger inflow of remittances and towards constituencies with few or declining remittances.
Empirical evidence for the crowding-out of public finance was provided from a balanced panel of subnational finance in Mexico
covering more than 1500 municipalities in the years 2000 and 2010. Mexico constitutes a unique laboratory for studying the effects
of remittances on public finance not only because of a large variation in dependent and independent variables, but also because of the
existence of the Three-For-One program of matching grant schemes, where migrants directly contribute to public infrastructure via
collective remittances that are matched by equal contributions from each of the three layers of government. Moreover, Mexican
municipalities receive more than 80% of their funds from states as the next higher administrative unit. Discretion in the allocation of
funds from states to municipalities provides an opportunity to study the political economy of remittances and subnational public
finance.
Using exogenous variation in labor markets as an instrument for remittances to Mexico, regression results showed that both
private and collective remittances had a strong negative causal effect on municipal budgets. Interactive effects indicate that results
are driven by poorer municipalities and that the effect is stronger in states governed by the traditional party PRI that dominated
Mexican politics for more than seventy years. Effects proved to be robust to a large number of different specifications, that include
weighting for the size of municipalities as well as matching procedures next to municipality fixed effects, a large number of time-
varying socio-demographic, economic and political controls, and alternative instruments.
Findings from this research bear at least three broader messages with relevance for remittances-receiving countries beyond the
Mexican case. First, migration and remittances have important indirect effects beyond the household economy, as demonstrated for
the case of municipal finances. These have to be taken into account when assessing the overall impact of migration and remittances
on migrants’ countries of origin. Second, the net benefits of remittances on communities might be lower than expected. Part of what
communities and households gain in private resources may be canceled out by crowding out public spending. Third, evaluations of
co-financing programs in the spirit of the Mexican Three-For-One program of which variations have been implemented or are being
planned in other countries have to go beyond narrow assessments and must consider their indirect effects on overall spending
patterns.
Finally, it should be emphasized that the empirical approach pursued here only compared trends in municipal finance between
municipalities with higher and lower shares of remittances-receivers, and those who received collective remittances and those who
didn't. While this allows to assess the relative distribution of public funds, it does not answer the question how the aggregate amount
of spending responds to remittances. In principle, remittances could raise overall fiscal revenue, for example via increases in con-
sumption taxes as a result of remittances. These are collected at the national level and do not accrue to municipal governments
directly. The question how remittances affect aggregate indicators of public finance at different levels of government is left for future
research.
Acknowledgment
The paper benefitted from conversations with and comments by Faisal Ahmed, Toman Barsbai, Allyson Benton, Jean-Louis
Combes, Barbara Fritz, Covadonga Meseguer, Alejandra Rios, David Singer, Tobias Stöhr, as well as from feedback at seminars and
conferences in Berlin, Oslo, Heidelberg, Leipzig, The Hague, Durham, Clermont-Ferrand and Mexico City. Comments by several
anonymous referees and the editor Timur Kuran helped improve the paper considerably. Lauren Duquette-Rury kindly shared data on
collective remittances. A previous version was circulated under the title “Do Remittances Crowd-In or Crowd-Out Public Finance?”
409
Annex
Annex 1, Annex 2, Annex 3, Annex 4, Annex 5, Annex 6.
Annex 1
Estimation of propensity scores (logit).
Collective remittances (TRESP1)
(Intercept) −8.3***
[2.8]
Private remittances (REM) 0.14*
[0.078]
Municipal budgets growth 0.0053
[0.053]
Age household heads 0.096***
[0.03]
Deprivation 0.46*
[0.24]
Education 0.076
[0.1]
Gender (Male=1) 0.024
[0.017]
Indigenous −0.0076**
[0.0036]
Population size (log) 0.35***
[0.067]
Poverty −0.02**
[0.0079]
GDP share −12***
[3.6]
GDP per capita −0.000005
[4.2e-05]
Manufacturing 0.0000021
[3.6e-06]
Total federal transfers −0.00098**
[0.00044]
Emigration 0.085***
[0.021]
Return migration 0.13*
[0.077]
PRI 1.4**
[0.59]
PAN 0.93*
[0.51]
PRD 0.79
[0.54]
PRI (State) −2***
[0.52]
PAN (State) −1.5***
[0.48]
PRD (State) −0.75**
[0.38]
Shared partisanship −0.072
[0.14]
Upcoming election (municipality) −0.043
[0.17]
Upcoming election (State) 0.92***
[0.21]
AIC 1688.68
#observations 1545
Propensity scores estimated using pre-treatment characteristics in 2000 on a binary

variable of whether municipalities benefitted from collective remittances in either 2009 or
2010. Standard errors are given in squared brackets. Stars denote statistical significance at
the 1% (***), 5% (*) and 10% (*) level.
410
Annex 2
Standardized Differences in means for matched and unmatched municipalities.
Differences in standardized means for treated and non-treated municipalities in the matched and unmatched sample
are shown in units of standard deviations of the pooled sample.
Annex 3
First step instrumental regression.
Private remittances Collective remittance
(1) (2) (4) (5)
(Intercept) −4.40E-01 −1.1 0.53*** 0.69***

[−1.25] [−1.13] [8.37] [6.29]
DUSEMPL 0.62*** 1.4*** 0.28*** 0.19***
[4.65] [4.6] [9.73] [3.74]
EVERIFY −0.0014*** −0.00049 −0.00024* −0.00026
[−3.21] [−0.314] [−1.78] [−0.903]
Age household heads 6.10E-02 0.17** −0.012* −0.014
[1.57] [2.42] [−1.91] [−1.17]
Deprivation −0.69*** −0.91 −4.70E-02 0.15*
[−2.67] [−1.25] [−0.971] [1.74]
Education −1.10E-01 −0.077 −1.50E-02 −0.026
[−1.08] [−0.295] [−0.677] [−0.622]
Gender (male = 1) −0.06*** −0.053 3.60E-04 0.0087
[−3.87] [−1.56] [0.126] [1.46]
Indigenous 1.70E-03 0.02 −1.20E-03 0.0018
[0.241] [1.1] [−0.587] [0.527]
Population size (log) −1.7*** −2.1** −0.16** −0.14
[−3.8] [−2.05] [−2.29] [−1.04]
Poverty −1.00E-02 −0.016 0.0037** −0.00097
[−1.4] [−0.628] [2.02] [−0.259]
GDP share −29*** −74* −16*** −15**
[−2.79] [−1.74] [−7.48] [−2.5]
411
Annex 3 (continued)
Private remittances Collective remittance

(1) (2) (4) (5)
GDP per capita 3.9e-05*** 8.7e-05** 2.4e-05*** 3e-05***

[2.76] [2.01] [5.1] [2.67]
Manufacturing 6.80E-06 6.0E-06 5.7e-06*** 7.3e-06***
[1.24] [0.459] [4.19] [3.56]
Total federal transfers 3.60E-04 −0.0011 −0.00038*** −0.00039**
[0.542] [−0.691] [−3.55] [−2.23]
Emigration 0.12*** 0.085* −0.014*** −0.00019
[5.83] [1.91] [−5.16] [−0.0385]
Return migration 0.25*** 0.24*** 0.022*** 0.029***
[6.78] [3.17] [4.07] [2.79]
PRI −1.50E-02 −1.5* 3.60E-02 0.14
[−0.0569] [−1.92] [0.495] [1.24]
PAN −2.40E-01 −1*** −1.70E-02 0.059
[−1.52] [−2.66] [−0.437] [0.862]
PRD 1.20E-01 −0.96 −0.17** −0.079
[0.402] [−1.19] [−2.1] [−0.604]
PRI (State) 3.80E-02 −0.2 −0.38*** −0.35***
[0.163] [−0.3] [−6.45] [−3.33]
PAN (State) −3.60E-02 0.39 −6.00E-02 −0.19
[−0.151] [0.541] [−1.09] [−1.6]
PRD (State) −5.90E-01 −0.3 −0.12* −0.22
[−1.24] [−0.37] [−1.82] [−1.53]
Shared partisanship 5.30E-02 0.29 1.60E-02 0.047
[0.698] [1.05] [0.878] [1.24]
Upcoming election (municipality) −6.40E-02 −0.74** 2.90E-02 0.11**
[−0.599] [−2.31] [1.09] [2.28]
Upcoming election (State) 1.60E-01 0.43** −0.13*** −0.17***
[1.38] [1.95] [−8.29] [−6.14]
Municipality fixed effects yes yes yes yes
Weighted by pop. size yes yes yes yes
Matched sample no yes no yes
R^2 0.18 0.19 0.3 0.2
adj. R^2 0.16 0.17 0.29 0.19
F-stat 13.61 11.71 26.97 12.97
#municipalities 1539 1241 1539 1241
First step instrumental regression of unemployment increases (DUSEMPL) and E-Verify policies (EVERIFY) where migrants reside on private and
collective remittances, in 2000 and 2010. Heteroscedasticity-robust t-values are given in square brackets. All specifications include municipality and
year fixed effects. Stars denote statistical significance at the 1% (***), 5% (*) and 10% (*) level.
Annex 4
Return migration, remittances and U.S. labor market shocks.
Return migration Private remittances Collective remittances
(1) (2) (3) (4) (5) (5) (6)
(Intercept) 7.1E-01 9.4E-01 1.4** −1.4E+00 −1.4E+00 0.69*** 0.72***

[1.09] [1.54] [2.22] [−1.59] [−1.59] [11] [6.85]
DUSEMPL 1.8*** 1.5***
[3.38] [2.72]
EVERIFY 5.6E-01 −9.8E-02
[0.796] [−0.141]
Return migration 0.23*** 0.23*** 0.037*** 0.032***
[2.9] [2.9] [6.82] [3.26]
Mun. fixed effects yes yes yes yes yes yes yes
Socioec./demogr. ctrls. yes yes yes yes yes yes yes
Poltics ctrls. yes yes yes yes yes yes yes
Migration ctrls. no no no no no no no
Weighted by pop. size yes yes yes no yes no yes
Matched sample yes yes yes no yes no yes
R^2 0.22 0.22 0.21 0.14 0.14 0.22 0.18
adj. R^2 0.21 0.2 0.19 0.12 0.12 0.21 0.17
F-stat 15.61 16.21 15.17 9.31 9.31 20.53 12.84
#municipalities 1241 1241 1241 1241 1241 1539 1241
Heteroscedasticity-robust t-values are given in square brackets. All specifications include municipality and year fixed effects. Stars denote statistical
significance at the 1% (***), 5% (*) and 10% (*) level.
412
Annex 5
Effect of private remittances on the 2-years’ growth rates in municipal budgets (2nd step OLS, with municipality fixed effects, using only EVERIFY as
an instrument).
Growth trends total budgets Growth trends external budget
(1) (2) (3) (4) (5) (6)
(Intercept) −0.39*** −0.54*** −0.44*** −0.41*** −0.45*** −1*

[0.035] [0.13] [0.13] [0.15] [0.17] [0.53]
Private remittances −0.36*** −0.17** −0.15** 9.00E-03 −7.90E-03 −5.00E-02
[0.098] [0.071] [0.065] [0.052] [0.049] [0.047]
Socioec. & demograph. ctrls. no yes yes yes yes yes
Poltics & and election ctrls. no yes yes yes yes yes
Migration ctrls. no no yes yes yes yes
Weighted by pop. size no no no yes yes yes
Matched sample no no no no yes yes
Weak instrument F-stat 17 21 26.3 26.3 16.6 14.8
Wu-Hausman (p-val) 8.27E-09 0.0108 0.0233 0.0233 0.0042 1.53E-03
#municipalities 1540 1539 1539 1539 1241 1167
Second step instrumental regression of private remittances on two-years growth rates in per capita municipal budgets in 2000 and 2010.
Heteroscedasticity-robust standard errors are given in square brackets. All specifications include municipality and year fixed effects. Controls
variables refer to the set of variables in Table 1. Stars denote statistical significance at the 1% (***), 5% (*) and 10% (*) level. Only state-level
variation of the variable EVERIFY is used as an instrument for remittances.
Annex 6
Remittances and 2-years’ growth rates in municipal budgets (OLS, un-instrumented).
(1) (2) (3) (4) (5) (6)
(Intercept) −0.38*** −0.43*** −0.47*** −0.3** −0.4** −0.46**

[0.12] [0.16] [0.18] [0.12] [0.17] [0.19]
Private remittances (REM) −0.014* −0.012 −0.011
[0.0075] [0.0089] [0.009]
Collective remittances (TRESP1) −0.13*** −0.04 −0.0021
[0.043] [0.06] [0.061]
Age household heads −0.0069 0.0045 −0.0036 −0.0094 0.0041 −0.0052
[0.01] [0.012] [0.012] [0.01] [0.012] [0.012]
Deprivation 0.063 0.083 0.16 0.068 0.088 0.17
[0.088] [0.1] [0.12] [0.088] [0.1] [0.11]
Education −0.083 −0.07 −0.073 −0.083 −0.069 −0.073
[0.055] [0.046] [0.055] [0.056] [0.046] [0.055]
Gender (male = 1) 0.0012 0.0075 0.0028 0.0023 0.0081 0.0033
[0.0047] [0.0063] [0.0085] [0.0048] [0.0064] [0.0086]
Indigenous −0.008** −0.0087** −0.0068 −0.008** −0.009** −0.007
[0.0039] [0.0041] [0.0049] [0.0039] [0.0041] [0.005]
Population size (log) 0.24* −0.041 −0.028 0.24* −0.037 −0.0045
[0.13] [0.12] [0.14] [0.13] [0.12] [0.14]
Poverty −0.00046 −0.0033 −9.1E-04 −5.3E-06 −2.9E-03 −6.4E-04
[0.0025] [0.0037] [0.0048] [0.0025] [0.0037] [0.0048]
GDP share 1.6 3.6 −13* −0.051 3.5 −12*
[3] [4.4] [6.8] [3.1] [4.5] [7]
GDP per capita −9.5E-06 −1.7e-05* 5.7E-06 −7.0E-06 −1.7e-05* 4.6E-06
[6.2e-06] [9e-06] [1.4e-05] [6.1e-06] [8.9e-06] [1.4e-05]
Manufacturing −1.4E-06 −6.4e-06*** −6.1E-07 −7.0E-07 −6.1e-06*** −6.2E-07
[1.7e-06] [2.2e-06] [2.7e-06] [1.8e-06] [2.2e-06] [2.7e-06]
Total federal transfers −1.6E-04 −1.4E-04 −2.6E-04 −2.0E-04 −1.6E-04 −2.6E-04
[0.00019] [0.00026] [0.00031] [0.00019] [0.00026] [0.00032]
Emigration 0.0078* 0.0042 −0.0022 0.0037 0.0029 −0.003
[0.0043] [0.0042] [0.0056] [0.0046] [0.0042] [0.0055]
Return migration −0.011 −0.0054 0.0018 −0.011 −0.0077 −0.00089
[0.0075] [0.0082] [0.011] [0.0077] [0.0087] [0.011]
PRI −0.046 −0.24* −0.21 −0.029 −0.23* −0.21
[0.073] [0.14] [0.14] [0.072] [0.14] [0.14]
PAN 0.089 0.12 0.066 0.095* 0.13* 0.072
[0.056] [0.077] [0.084] [0.056] [0.078] [0.085]
PRD −0.009 −0.18 −0.066 −0.012 −0.18 −0.071
[0.082] [0.15] [0.16] [0.082] [0.15] [0.16]
PRI (State) −0.22*** −0.23** −0.52*** −0.26*** −0.24** −0.53***
413
Annex 6 (continued)

(1) (2) (3) (4) (5) (6)
[0.08] [0.11] [0.16] [0.082] [0.11] [0.15]

PAN (State) −0.26*** −0.08 −0.11 −0.27*** −0.092 −0.12
[0.086] [0.11] [0.13] [0.086] [0.11] [0.13]
PRD (State) −0.47*** −0.34** −0.39** −0.48*** −0.35*** −0.39**
[0.12] [0.13] [0.16] [0.12] [0.14] [0.16]
Shared partisanship 0.011 0.0097 0.051 0.012 0.0096 0.048
[0.028] [0.034] [0.045] [0.028] [0.034] [0.045]
Upcoming election (municipality) −0.1** −0.11* −0.093 −0.093** −0.1* −0.084
[0.041] [0.06] [0.065] [0.041] [0.06] [0.066]
Upcoming election (State) 0.034 0.038 −0.0077 0.01 0.028 −0.0099
[0.027] [0.045] [0.049] [0.029] [0.048] [0.052]
Weighted by pop. size no yes yes no yes yes
Matched sample no no yes no no yes
R^2 0.07 0.11 0.13 0.08 0.11 0.12
adj. R^2 0.06 0.1 0.11 0.06 0.1 0.11
F-stat 4.96 8.41 7.61 5.39 8.29 7.47
#municipalities 1539 1539 1241 1539 1539 1241
Un-instrumented regression on two years’ growth rates in municipal budgets in 2000 and 2010. Heteroscedasticity-robust standard errors are given
in square brackets. All specifications include municipality and year fixed effects. Stars denote statistical significance at the 1% (***), 5% (*) and 10%
(*) level.
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Journal of Comparative Economics 47 (2019) 396–415

Contents lists available at ScienceDirect

Journal of Comparative Economics

Government reactions to private substitutes for public goods:

ARTICLE INFO ABSTRACT

1. Introduction and theoretical considerations

2. Empirical strategy and data

Dependent variable (municipal level)

Variable Mean [standard dev.] Description

(Intercept) 0.17 −4.40E-01 −1.1E+00 0.33* 0.53* 0.69***

REM * Same party at both levels 0.0079

Annex 1, Annex 2, Annex 3, Annex 4, Annex 5, Annex 6.

Propensity scores estimated using pre-treatment characteristics in 2000 on a binary

(Intercept) −4.40E-01 −1.1 0.53* 0.69*

Private remittances Collective remittance

GDP per capita 3.9e-05* 8.7e-05 2.4e-05* 3e-05*

(Intercept) 7.1E-01 9.4E-01 1.4 −1.4E+00 −1.4E+00 0.69* 0.72***

(Intercept) −0.39* −0.54* −0.44* −0.41* −0.45*** −1*

(Intercept) −0.38* −0.43* −0.47* −0.3 −0.4 −0.46

Growth trends total budgets

[0.08] [0.11] [0.16] [0.082] [0.11] [0.15]

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