Purpose:

To offer an estimation of income distribution measures for municipalities in Mexico for year 2015, and also an analysis of municipal grants on income inequality.

Methodological design:

We constructed Gini and Atkinson indexes using microdata from the Mexican inter-census survey 2015. We use these inequality indexes along with other several features of poverty and marginality to perform cluster analysis and classify municipalities. From our cluster analysis, we classified the municipalities in four groups: low, medium-low, medium-high and high-income inequality. Afterwards, we performed weighted least squares regressions to observe the effect of fiscal variables on inequality in each group.

Results:

Although the objective of federal grants has been poverty instead of inequality, we offer evidence that income inequality is inversely affected by the design of federal grants. The regression analysis shows that conditional grants designed to reduce poverty might be increasing inequality, while unconditional grants may help to reduce income inequality even though this is not their policy objective.

Research limitations:

The main limitation might be the lack of local statistics for other years to perform a dynamic analysis.

Findings:

The overall effect of conditional grants on income distribution is small but still positive, showing that conditional grants do not reduce income inequality. The estimates show that the total effect is for lower income inequality, especially in those municipalities with high and very high inequality.

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