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2007 OECD Economic Surveys: Mexico 2007

image of OECD Economic Surveys: Mexico 2007

This edition of OECD's periodic economic survey of Mexico examines key challenges Mexico faces in the medium-term including strengthening public finances, maximising the gains from integration into the world economy, improving infrastructure (including transport, telecommunications, electricity, and natural gas), and creating more and better jobs to alleviate poverty.

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Putting public finances on a firmer footing

Mexico has shown responsibility in fiscal policy, and its headline fiscal position is good. However, the underlying situation of public finances is not yet comfortable because of the heavy reliance of the budget on uncertain oil revenue. As a consequence, fiscal policy is heavily influenced by world oil prices and the sustainability of national oil production. At the same time, there are increasing demands made on the budget for development priorities in the areas of basic infrastructure, education, health and poverty alleviation, which require reliable financing. Increasing the efficiency of public service delivery is a sine qua non for fiscal policy to support the catching-up process, but it will go only part of the way to meeting increased budgetary demands. Mexico’s tax/GDP ratio is one of the lowest in the OECD and a far-reaching tax reform is a priority in order to increase revenues while reducing distortions. A review of fiscal relations across levels of government is also needed to improve the division of powers and responsibilities and strengthen sub-national governments’ accountability. The new government is planning a broad public finances reform, which is promising. Passing the required reforms and implementing them remains a major challenge.

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