and rural productive infrastructure. States may use the resources in localities exhibiting extreme poverty or large deficits in social infrastructure. Any other type of investment must be authorized by the federal government.

From 1998 until December 2013, the allocation of the FAIS among municipalities followed a mathematical formula.<sup>12</sup> The formula generated first a measure of household poverty, called the global poverty index, based on five indicators of well-being: income, education, housing, sewerage, and electricity. The index is multiplied by the number of people in extreme poverty in the household to obtain a deficient mass for each household. Subsequently, all the household masses are aggregated to obtain indexes of poverty at the municipal, state, and national levels. The percentage of the FAIS assigned to each state or municipality is thus proportional to the share of the deficiency mass by state (or municipality) with respect to the overall national deficient mass.

The unweighted average of municipal real revenue in Mexico has risen by a factor of 2.5 in 2000–14 (table 1). This increase in municipal fiscal revenues is reflected in the growth of spending on public works during the period. At the same time, there was an increase in current expenditure in the municipalities (salaries, services, and supplies). However, the ability to obtain resources remains limited. Conditional and unconditional state and federal transfers represent the largest source of income among municipalities.

Table 1. Trends in major municipal resources and investments

|_Category of municipal public finance_||_Annual aver_<br>|_age per capita_<br>|||_Annual chang_<br>|_e_<br>|
|---|---|---|---|---|---|---|---|
||_2000_|_2005_|_2010_|_2014_|_2000–05_|_2005–10_|_2010–14_|
|Investment in public works|519|915|1,442|1,917|15.26|11.52|8.24|
||(0.626)|(0.776)|(1.026)|(2.207)||||
|Total revenue|2,066|3,142|4,149|5,082|10.42|6.41|5.62|
||(1.579)|(1.992)|(2.370)|(3.702)||||
|Own resources (for example, taxes)|203|291|325|335|8.67|2.34|0.77|
||(0.332)|(0.417)|(0.497)|(0.472)||||
|Unconditioned transfers|1,176|1,552|1,723|1,979|6.39|2.20|3.71|
||(1.092)|(1.509)|(1.531)|(1.964)||||
|Conditional transfers|514|1,069|1,746|2,443|21.60|12.67|9.98|
||(0.637)|(0.589)|(1.031)|(2.092)||||
|Other|172|230|354|325|6.74|10.78|−2.05|
||(0.346)|(0.416)|(0.619)|(0.930)||||
|Ramo 33|449|942|1,291|1.506|21.96|7.41|4.16|
||(0.576)|(0.484)|(0.573)|(0.859)||||
|Municipal Strengthening Contribution Fund|189|360|440|501|18.10|4.44|3.47|
||(0.208)|(0.113)|(0.073)|(0.104)||||
|FAIS|259|582|851|1,004|24.94|9.24|4.49|
||(0.451)|(0.438)|(0.567)|(0.842)||||

_Source:_ Calculations based on SIMBAD (State and Municipal System Databases), National Institute of Statistics and Geography (INEGI). _Note:_ In years in which the municipality does not report financial statements, these were proxied by financial statements from the nearest year within a two-year period either before or after. All monetary variables are expressed in the values as of August 2014. The data cover 2,120 municipalities on which indicators are available on poverty and public finance in around 2000, 2005, 2010, and 2014. Averages are not weighted by population. Own municipal resources include taxes, rights, and land use.

12 Through the reform to the Fiscal Coordination Law in 2013, the allocation formula for the FAIS changed to align the distribution of resources with the new multidimensional poverty measurement. The new formula distributes resources in a two-step process. First, the allocation of resources to municipalities in 2013 is taken as a base. Then, if the resources from the fund in the current year are different from the allocation received in 2013, the difference is distributed based on official poverty indicators, as follows: (a) 80 percent to municipalities according to their weight in the national average for deprivations of the population in extreme poverty, and (b) the remaining 20 percent as a bonus to the municipalities that have been efficient in reducing extreme poverty.

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