The illusion of criminal 'order': institutional trust and municipal finances in Mexico

Lack of violence does not mean the absence of organized crime. Criminal groups can maintain order and peace, sometimes more effectively than the state itself, and at times in collaboration with it. With this in mind, this paper examines how the presence of organized-crime groups shapes Mexican municipalities’ ability to collect revenue, deliver public goods, and earn citizens’ trust. Survey data show that residents living in neighborhoods under criminal control report lower trust in local government, regardless of whether those groups provide “order” or engage in extortion and violence. Municipality-level data further reveal that both local revenue collection and public spending decline over time in areas with criminal presence, independent of independent of whether they are dominated by a single group (whereby crime syndicates’ provision of order is more likely) or see multiple organizations vie for supremacy (leading to extortion and violence being more commonplace). Evidence from Mexico suggests that criminal governance, even when peaceful, fractures the social contract locally: it erodes institutional trust, weakens municipalities’ fiscal capacity, and harms public-good provision.