ABSTRACT
The Mexican federal system has been characterized by a high degree of centralism. The more centralized a fiscal system is, the more insurance it provides against member states’ idiosyncratic macroeconomic shocks. We can identify the degree of fiscal insurance with a state’s degree of independence from the randomness of its specific fiscal system. Thus, the system provides more insurance the higher the tax revenue collection by the central government (and so the system’s capacity to insure), the higher its level compared to the states’ collections, and the more redistribution among its regions.
