Since 1998, the importance of the FAIS in municipal public finances has increased. In 2002, nearly 92 percent of the municipalities reported that they had received FAIS transfers (2,248 of 2,443 municipalities). Between 2004 and 2014, the resources allocated to the FAIS exhibited an average annual growth of 4.7 percent in real terms, reaching Mex$43.4 billion in 2014. On average, 11.5 percent of the per capita fiscal resources in a municipality in 2014 were provided through the FAIS, although the share is larger in municipalities characterized by greater marginalization. According to the 2015 marginalization index by the National Population Council of Mexico (CONAPO), those municipalities with high levels of marginalization had an average 47.1 percent of income per capita attributable to the FAIS, while municipalities with very low levels of marginalization had a share of only 11.9 percent.

# **4. Data**

The analysis exploits longitudinal data on municipalities from comparable poverty maps and administrative data on public expenditure. The panel includes information on 2,120 municipalities (of 2,443 municipalities across Mexico) and covers 2000, 2005, 2010, and 2014. The data are taken mainly from three sources: (a) income, poverty, and inequality variables from poverty maps; (b) public expenditure variables from administrative records; and (c) economic and other nonmonetary variables from economic and population censuses.

# i. Longitudinal data on municipalities from the panel of poverty maps

In Mexico, the agency responsible for producing official poverty rates, the National Council for the Evaluation of Social Development Policy (CONEVAL), has the mandate to measure poverty in the municipalities every five years. Given the lack of data at this geographical level, CONEVAL jointly with the World Bank, produced a panel of municipal poverty maps for 1990, 2000, 2005, and 2010.<sup>13</sup> More recently, the World Bank has produced a comparable municipality-level poverty map for 2014 combining the inter-census survey of 2015 with the 2014 household survey. This long-term panel of poverty maps allows an analysis of local trends and drivers of income, poverty, and inequality in Mexico.

Figure 1. Per capita household income growth across municipalities, percentiles, 2000–14 <!-- Start of picture text -->
1.30<br>1.25<br>1.20<br>1.15<br>1.10<br>1.05<br>1.00<br>0.95<br>0.90<br>2000 2005 2010 2014<br>Percentile 10 Percentile 50 Percentile 90<br>household income index<br>municipal mean per capita real<br><!-- End of picture text -->

_Source:_ Calculations using the poverty maps of 2000, 2005, 2010, and 2014. _Note:_ Unweighted average. The index shows the changes in a given percentile of the distribution of the municipal mean household income per capita. Municipalities at the n percentile in 2000 and 2014 do not necessarily correspond.

Figure 2 **.** The share of municipalities that reduced inequality, by income group, 2000–14 <!-- Start of picture text --> 2000-2005 2005-2010 2010-2014<br>100%<br>90%<br>80%<br>70%<br>60%<br>50%<br>40%<br>30%<br>20%<br>10%<br>0%<br>1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20<br>municipalities gruped by initial per capita household income<br>GINI<br>% of municipalities with higher<br><!-- End of picture text --> _Source:_ Calculations using the poverty maps of 2000, 2005, 2010, and 2014.

_Note:_ Each quantile group is approximately 112 municipalities.

13 The poverty mapping technique, developed by Elbers, Lanjouw, and Lanjouw (2003), allows the estimation of poverty at high levels of disaggregation.

10