Desarrollamos una teoría de transferencias intergubernamentales optimas y un análisis de simulación que nos permite estimar las transferencias óptimas de recursos del gobierno central a los gobiernos estatales en México. Nuestros resultados son: Primero, nuestros modelos demuestran que el mejor predictor de las transferencias intergubernamentales observadas en México es la densidad poblacional. Segundo, nuestro trabajo provee recomendaciones de política económica al proporcionar estimaciones sobre la proporción óptima de transferencias intergubernamentales a los estados en México. Nuestro análisis es el primero en desarrollar estimaciones de las transferencias intergubernamentales al utilizar funciones paramétricas Paretianas de la distribución regional del ingreso y las preferencias inter-regionales por el gasto público local. Nuestras estimaciones ayudan a entender las ventajas y desventajas del sistema actual de transferencias y, adicionalmente, propone una alternativa de asignación de las transferencias intergubernamentales que podría mejorar el bienestar asociado con el gasto público local en México.

We develop a model with optimal shares of intergovernmental transfers, and we apply a simulation analysis of our model for the case of Mexico. The main outcomes of this paper are as follows: First, we provide optimal shares of intergovernmental funds to be allocated in each state considering the regional distribution of the benefits of local public spending in Mexico. Second, our analysis shows that the regional heterogeneity of preferences across regions should be an important determinant of federal funds allocated to state governments. Third, the current system of finance relies on a tax revenue sharing accord that emphasizes nationwide tax collection issues as the main determinants of intergovernmental transfers and local spending. Our analysis provides a contrast between how fiscal policy is conducted, and feasible choices of policy reform. Fourth, our analysis of simulation identifies winners and losers from policy reform, and so our analysis contributes to a better understanding of the advantages and shortcomings of the current policy of intergovernmental transfers, providing feasible ways to improve the outcomes of subnational government spending.

We develop an analysis that identifies the characteristics of an optimal system of shared tax collection and intergovernmental transfers. Mathematical optimization is used to find the level of taxes and intergovernmental transfers. Formulas for the optimal level of taxes and transfers to subnational governments are characterized. We suggest reforms to intergovernmental transfers to include the costs of tax inefficiency, some tax equalization transfer rules, and the marginal social benefits of local public spending. Future research could include local public spending with regional externalities, migration, and consider a dynamic model. This article proposes an original theoretical model of optimal tax coordination and transfers. The optimal level of taxes and transfers are identified. This paper proposes reforms to the participation formula for subnational governments.