This chapter analyzes intergovernmental fiscal relations in Mexico by focusing on recent trends in the revenue-sharing system, federal investment programs, and the National Solidarity Program. It demonstrates that the financial flows from the higher to the lower levels of government are designed to support a centralized system in which equity and effectiveness are far from being the predominant criteria for resource distribution. The chapter presents an overview of federal-state fiscal relations. It analyzes the structure of public finances at the state level, with special emphasis on the sources of revenue and the patterns of expenditure. The revenue-sharing system respects state sovereignty and operates through a voluntary agreement between state government and the Ministry of Finance. The chapter explains that federally financed investments in the states are nearly twice the amount states receive from revenue sharing and, more significant, their allocation is not formula-driven.