Fiscal decentralization in rural local governments in Mexico: changes in accountability and entrepreneurship in the local government structures

Shifting responsibilities from central to lower government levels is assumed to improve the delivery of local public services. In theory, local actors are encouraged to behave in a more accountable and entrepreneurial fashion. This paper sheds light on the impact of decentralisation policies in small-rural municipalities in Mexico. It answers the question whether fiscal decentralisation has been associated with changes in patterns of accountability and entrepreneurship, which tend to promote good governance in rural local governments. It employs fixed effect design to analyse financial, political, performance and administrative variables from 1990 to 2008. In addition, it proposes a definition for accountability and entrepreneurship in rural settings. The empirical evidence suggests that the influence of political variables in performance is a dynamic cycle and that rural municipalities have been engaged on both accountability and entrepreneurial behaviour. These changes seem to be highly encouraged by the type of financial resources decentralised.