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2019 OECD Economic Surveys: Mexico 2019

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Mexico’s robust macroeconomic policy framework has supported moderate growth despite several headwinds in recent years. However, low productivity growth has hindered Mexico’s convergence to higher-income OECD countries and inequalities remain high. These factors call for a renewed strategy to boost productivity and inclusiveness. Rising crime and insecurity are negatively affecting economic activity and citizens’ wellbeing, particularly the underprivileged and women. Strengthening institutional quality is a priority. Improving the weak rule of law will also facilitate the effective implementation of policy initiatives in other areas. In spite of recent achievements, tax revenues remain low and fiscal policy has little redistributive impact. In the near term, improving the efficiency of tax collection and spending will allow the public debt-to-GDP ratio to stabilise and provide some room for greater social and infrastructure spending. In the medium term, raising tax revenues and modifying the tax mix will allow reductions in public debt, create further fiscal space and increase progressivity. Reducing high informality will require coordinated actions in enforcement, taxation, business and labour regulations and the social safety net to better align incentives to formalise and drive resources towards more productive (formal) firms. Increasing educational outcomes for all will increase equality of opportunities and build the foundations for higher productivity. Raising access to quality early childhood education and care will also encourage greater female labour market participation. Improving urban planning and transportation would raise the productivity potential of cities and improve environmental outcomes.

SPECIAL FEATURE: STRENGTHENING INCLUSIVE GROWTH

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Boosting inclusive growth

Mexico’s GDP per capita levels remain the lowest in the OECD, reflecting low growth rates stemming mainly from poor labour productivity performance. To allow convergence towards higher living standards and well-being, Mexico needs structural policy reforms that can deliver robust, sustainable and inclusive growth. This chapter, therefore, focuses on win-win policies to boost productivity and reduce inequalities in order to deliver prosperity for all Mexicans. Reducing high informality is a priority area and will require coordinated actions in taxation, business and labour regulations and the social safety net to better align incentives to formalise and drive resources towards more productive (formal) firms. Increasing educational outcomes will set the foundations for quality, formal jobs and higher value‑added production and exports. While access to education has improved, more efforts are needed to raise quality, especially in early childhood education and care, shift resources towards lower education levels and prioritise schools in poor areas and students from disadvantaged backgrounds. Improvements in urban planning and transport would help raise the productivity potential of Mexico’s cities and improve environmental outcomes. The creation of joint metropolitan governance arrangements to deliver integrated public services would also increase the efficiency of public spending and improve the well-being of citizens.Women’s skills remain a source of untapped potential to lift growth, inclusion and reduce poverty. Inequalities start early, as the high share of young women not in education, employment, or training (NEETs) prevents them from accessing good quality formal jobs later in life. Current policies to reduce the high share of NEETs should have a focus on women. Expanding early childhood education and care would increase both women’s labour market participation as well as enhance educational outcomes.

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