Relationship between property tax and municipal institutional capacities: The case of Hidalgo, Mexico

Abstract

This study examined the association between institutional capacities and municipal income in Hidalgo, Mexico. Using (A) principal component analysis and (B) cluster analysis, the study analyzed variables related to municipal finance, institutional capacities, and public services. Results indicate that: (A) of the institutional capacities examined, budgeting, management, and implementation of public policies was most associated with the municipal income; (B) the municipalities of Hidalgo were grouped into three different clusters based on their institutional capacities and resources from federal transfers. Results emphasize that municipal public finance in Hidalgo is dependent on federal transfers; these results also contribute to a better understanding of the role of institutional capacities in the municipal income. To strengthen the public finances of the municipalities under their charge, decision-makers could consider more flexible mechanisms that streamline administrative processes and procedures.