(mainly universal basic education and health for the uninsured), earmarked transfers for these sectors, and more effective political autonomy. The dependence of their revenues on federal transfers continued and is now out of step with their spending responsibilities, political autonomy, and freedom to borrow in the market. Also, the devolution of service responsibilities comes with a number of unfunded mandates from the federal level, particularly related to the pay and management of personnel. The states also want more transparency in the revenue sharing system and some protection against (excessive and arbitrary) reduction of transfers via administrative action during the budget year. (They believe this happened in 2002.) All the states want more resources. Figure 2 shows the per capita distribution by type of transfer (and own revenue).<sup>3</sup> The states are arrayed according to poverty levels; those having the highest rates of marginality (CONAPO) are on the left. While there is a lot of variation, on average the states with highest marginality get as much as the states in the middle and only a little less than the rich states on the right. Except for a couple of states like Tabasco and Campeche, which already get much more per capita than the others, the states do need more resources to meet their service obligations in the long run, although many of them lack the institutional capacity to use efficiently or effectively even the resources that they now are getting. Part of the problem is simple lack of technical capacity, but part is also in the centralized patron-client incentive structure associated with the transfers. With almost all resources coming from more or less automatic transfers, they are viewed as patronage to be distributed to employees and other clients, rather than as resources that the citizens pay for public services. To obtain more resources, at least some state governments want more ability and authority to raise own revenues. This would also have the benefit of shifting incentives toward encouraging accountability of the state governments for providing services to citizens in return for their tax payment.

The states are concerned about the horizontal dimension of the transfer and revenuesharing system (the distribution across states), as well as the vertical dimension between levels of government. A variety of state governments, from Nuevo Leon to Veracruz and Chiapas, have interest in more local tax authority, although the poorer states would also want some compensation for their lower tax base per capita, especially if the devolution of tax base to the states comes at the expense of the federal tax base and thus of the revenue shared with the states through the SNCF. Indeed, the states are asking for a reduction of federal rates to make tax room for the imposition of state taxes on the same bases. Most small states (and especially Tabasco) want long-run protection of the current level of transfers, since financially they are doing well in the system now. To make the devolution of taxes work, the states will need help with tax administration. For the institutionally stronger states, this would involve mainly provision of information about federal taxes collected in the state, particularly on the same bases as were devolved to the states. Other states will need more help, including institutional development and perhaps even federal collection of the tax on behalf of the state.

> 3 The Ramo 25 resources for DF, which are spend by the federal government for basic education, are shown as aportaciones, to have comparability for all states. States own-revenue data is from 1998, adjusted for inflation; but not reflecting actual changes in local tax effort.

5