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Bargaining for a new fiscal pact in Mexico

Listed author(s):
  • Webb, Steven B.
  • Gonzalez, Christian Y.
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    The authors consider the malaise with the present set-up of fiscal federalism in Mexico from the points of view of the main players-the federal government, the states, the municipalities, and the citizen voters-in order to identify the areas of potential common interest as well as the direct conflicts. There is a zero-sum game on some issues, like the size of aggregate transfers, but not on others, likeraising tax collection and improving accountability for service delivery. The authors consider bargain packages that combine mutually beneficial changes and thus might obtain broad enough political support. They analyze the bargaining packages in two main tracks-one concerning tax assignments, revenue sharing, and tax administration, and another concerning the conjunction of earmarked transfers and accountability for service provision. An important result is that almost all states would find it fiscally attractive to impose a sales tax that replaced part of the federal value-added tax (VAT), even if the federal government reduced revenue sharing enough to cover half the cost of reducing the VAT rate to make room for the state tax.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3284.

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    Date of creation: 01 Apr 2004
    Handle: RePEc:wbk:wbrwps:3284
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    1. Paqueo, Vicente & Lopez-Acevedo, Gladys & Parandekar, Suhas, 2003. "On the use of transparent formulae to allocate federal education transfers," Policy Research Working Paper Series 3171, The World Bank.
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