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Improving Fiscal Federal Relations for a Stronger Mexico

Author

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  • Aida Caldera Sánchez

    (OECD)

Abstract

Mexico has achieved a high degree of decentralisation in public services, but the Mexican fiscal federal system has important shortcomings. States and municipalities have become heavily dependent on federal transfers to finance a growing share of public spending. This leaves the burden of raising tax revenues falling almost exclusively on the federal government and reduces incentives for efficient spending and active tax collection at the subnational level. It can also lead to moral hazard and fiscal slippages. The federal government should harden the budget constraint on sub-national governments by limiting further increases in transfers and avoiding extraordinary transfers. Promoting the implementation of stronger fiscal rules, such as rules on deficits and debt ceilings, could also help to harden budget constraints and to ensure greater fiscal discipline. States should be given more taxing powers, if they are to collect a larger share of total revenues. Greater accountability and clarification of spending responsibilities could also contribute to improve the efficiency of spending among states and municipalities. Améliorer les relations budgétaires fédérales pour renforcer l'économie Mexicaine Le Mexique a poussé très loin la décentralisation des services publics, mais le système budgétaire fédéral présente des déficiences importantes. Les États et les communes sont désormais très tributaires des transferts fédéraux pour financer une part croissante des dépenses publiques. De ce fait, c’est sur l’État fédéral que repose presque exclusivement la tâche de lever l'impôt et l'échelon infranational est peu incité à dépenser efficacement et à recouvrer activement des recettes fiscales. Cette situation peut aussi générer un aléa moral et des dérapages budgétaires. L'État fédéral devrait exercer une plus forte pression budgétaire sur les entités infranationales en limitant les nouvelles hausses des transferts et en s'abstenant de consentir des transferts exceptionnels. L'application de règles budgétaires plus strictes, comme des règles en matière de déficits et le plafonnement de la dette, pourrait aussi accentuer les contraintes et assurer une plus grande discipline dans ce domaine. Pour être en mesure de recouvrer une plus grande partie des recettes publiques totales, les États doivent se voir accorder plus de pouvoirs en matière fiscale. Davantage de responsabilisation et une clarification des attributions sur le plan des dépenses seraient aussi de nature à améliorer l'efficience de ces dernières au niveau des États et des communes.

Suggested Citation

  • Aida Caldera Sánchez, 2013. "Improving Fiscal Federal Relations for a Stronger Mexico," OECD Economics Department Working Papers 1078, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1078-en
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    File URL: http://dx.doi.org/10.1787/5k42213gqpr3-en
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    Cited by:

    1. Guillaume Bousquet & Christian Daude & Christine de la Maisonneuve, 2015. "Fiscal Decentralisation in Colombia: New Evidence Regarding Sustainability, Risk Sharing and “Fiscal Fatigue”," OECD Economics Department Working Papers 1202, OECD Publishing.

    More about this item

    Keywords

    decentralisation; décentralisation; federalism; fédéralisme; gouvernement local; local governments; Mexico; Mexique;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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