This article explains variation in the composition of municipal spending, focusing on Mexican urban municipalities. Contrary to the conventional wisdom that electoral competition produces more responsive governance, I uncover strong evidence that competitive elections drive municipal governments to underinvest in infrastructure and overspend on current expenditure. I explain this puzzling finding with the concept of fiscal populism—a set of budgetary policies meant to be electorally popular in the short run, despite their long-run detrimental welfare effects. Fiscal populism leads to underinvestment through two mechanisms: (1) excessive spending on patronage hiring to reward electoral allies and (2) neglecting to increase own revenue—especially taxes—for fear of electoral costs. This argument is supported through a multi-method research design. A large-n statistical analysis establishes the positive correlation between electoral competition and current expenditure. A qualitative comparison of eight municipalities uncovers the mechanisms by which electoral competition drives municipal fiscal decisions.
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