ABSTRACT
This chapter reviews, from a municipal perspective, how public finance systems in Brazil and Mexico have fared following the recession that began in the region in 2008 and considers those experiences against the emerging narrative of improved state performance in the region. The transmission of the global financial crisis of 2008 sent administrations in Latin America searching for responses to the precipitous decline in global demand and credit availability. This was also the case at the subnational level, albeit with a short lag time and foreboding regarding a slightly different set of impacts, with local governments forced to respond to increased demand for local services and to do so in the face of future budgetary uncertainties. This was certainly not a new phenomenon but is representative of one of the enduring pathologies of subnational public finance: the acute vulnerability of local governments to cascading effects from exogenous economic and policy changes that impact the local budget. Contrary to previous episodes of fiscal adjustment in the region, for example, the introduction of fiscal responsibility legislation, the ability of local governments to manage local fiscal adjustment while maintaining essential services, would be tested not as a result of systemic reform but through the operational and policy resiliency of the existing public finance systems in the region.
