Association for Public Policy Analysis & Management

While state and municipal debt has increased in real terms over the past decades by 121.2 percent, the response by the Mexican government has been to create National Law of Fiscal Disciple for State and Municipal Governments in 2016. While the governmental response to centralize and control debt, the question of compliance and impact are vital to the possible implementation of such a law. The chapter will define the law and present reasons why the compliance will not be met. Such factors include are the fact that this is a secondary law (some states have harder constrains than the law presents); the central government has allowed historically soft bailouts (Hernandez-Trillo 2017) causing issues of moral hazards; there are problems with issuing fiscal rules from the center when weak institutional arrangement exists at the time of budget execution exists and little transparency is provided; and finally there are few checks and balances at the ballot box with local referendum where people decide their debt issuance. These factors could become more problematic with the upcoming presidential election in 2018. Therefore, the chapter will conclude with a summary of findings from the political economic literature to speculate what could happen with different political parties winning the presidential election in 2018.