The financial defense of public programs. The case of the dismantling of Seguro Popular in Mexico

Abstract

This article aims to verify how local governments behave when face reduction or disappearance of a centrally financed public program. It is investigated whether local governments mobilize their own resources to keep the program running in their territory. The article combines categories from the policy dismantling literature and economic theory to analyze the financial behavior of local governments in the face of systematic transfer budget reductions. Using a panel-type model for the 32 federal entities of Mexico receiving a public health financing program known as ‘Seguro Popular’ in the period 2012-2021, we find evidence of the existence of a symmetrical flypaper effect, which suggests that local governments use their tax faculties to use their own resources to finance the program when transfers increase, but do not do so when transfers decrease.