As Latin American countries decentralize their governments, the local level must provide an increasing variety of public services. In urban areas these tasks are varied and complex, ranging the provision of water and sewage services, to construction permit processing. Mexico’s fifteen years of experience with decentralization policy can help us assess whether such shifts in responsibility from federal or state governments to the local level represent a “decentralization of austerity,” or a real opportunity to improve urban management.
In this paper, I approach the question in two ways. First is a review and analysis of the largest fifty-five municipalities in Mexico to determine whether a decentralization of fiscal austerity actually occurred. I find that urban municipalities have access to substantially greater financial resources than before decentralization efforts began. However, financial resources are not the only aspect of decentralization that determines local service provision. In the second part of the paper, I evaluate these other aspects— principally institutional and administrative capacity— considering the experiences of four representative urban municipal cases. This look at more subtle dimensions of local government leads me to suggest that fiscal decentralization is but the first step in a much more complex process. However, the dynamics unleashed by the decentralization of public finance have opened the way for actors with local interests to continue the decentralization process, pressuring higher levels to help them develop the administrative and institutional capacity of local governments.