Chapter 4 delves into the history of the regulatory environment surrounding subnational debt in Mexico, emphasizing the necessity of alternative revenue sources for local economic growth while cautioning against soft budget constraints and lax regulatory oversight. Drawing lessons from the United States, the chapter explores Mexico's subnational debt increase, its local finance system, and available municipal bond options. It highlights how the legal, administrative, and political environment has contributed to subnational overspending. Through a case study of Mexico, the chapter evaluates fiscal rules and governance literature to provide insights into effective debt management. Additionally, it discusses recent policy reforms aimed at centralizing control over subnational debt, raising questions about their efficacy and implications for Mexico's financial sustainability.