OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

 

Improving Fiscal Federal Relations for a Stronger Mexico You or your institution have access to this content

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Author(s):
Aida Caldera Sánchez1
Author Affiliations
  • 1: OECD, France

Publication Date
23 Aug 2013
Bibliographic information
No.:
1078
Pages
49
DOI
10.1787/5k42213gqpr3-en

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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.
Keywords:
decentralisation, federalism, local governments, Mexico
JEL Classification:
  • H11: Public Economics / Structure and Scope of Government / Structure, Scope, and Performance 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; Secession
  • O54: Economic Development, Technological Change, and Growth / Economywide Country Studies / Latin America; Caribbean