Public Finance in Mexico

Public Finance in Mexico

In the Mexican federal system, there are three levels of government: federal (central), state (sub-national), and municipal (local). Regarding revenue collection, most are charged by the central government, which collects a tax-for the intergovernmental agreement the two main taxes: value added tax (VAT) and income tax (individuals and companies) value addition the central government receives the oil extraction rights of the nation.

The sub-national government has its tax powers, supported the lodging tax and payroll tax as well as the possession and purchase of vehicles. As for the (local) municipal governments, they support their own income in property taxes and rights for public entertainment licenses. In addition to the own income levels, state and municipal governments receive transfers from the federation: shares and fund contributions and other funds that

A REVIEW OF SUB-NATIONAL GOVERNMENTS IN MEXICO support regularizable not on average 90% of public spending. A third source of government funding is coming

from the debt, which can only be destined to expenses of public investment, which is defined in the legislation. In a first phase, in this review of public finances, we can describe the overall federal government spending is at levels below 25% of the total value of the economy, and even the income is not sufficient to cover the budget, using controlled deficits, approved by congress by 3% on average (see Figure 2).

17.2 17.2 17.0 18.2 19.0 20.7 % Public Exp.

21.6 20.2 20.7 21.8 22.4 24.0 % (Déficit -superávit)

Figure 2. Revenue and expenditures federal government primary deficit or surplus budget (annual %). Source: prepared with data from National Institute of Statistics (INEGI).

With regard to the tax burden the country is concerned, it has been improving in recent years, but is still below the OECD (Organization for Economic Co-operation and Development) countries and most of Latin America. Besides this load, it generates most only the central government and state and local governments accounted for 1.4% of the 20.5% of 2012, i.e., they generate 7% of total national tax burden (see Figure 3).

In the case of income of the states in the country, these are a generation of income on average 7.3%, transfers received from the federal government 80.2%, finance (debt) 8.4%, and other resources 4.1%. The performance that has state revenues shows a drop observed between the periods 2000-2002 and 2009-2012 (see Figure 4).

As for the level of public spending, it remains lower growth rates from 2008-2010 and has maintained a slight increase from 2011, but still has weaknesses in expanding the responsiveness of public expenditure in the sub-national governments. The main items of the budget are transfers and supports approximately 40%, wages and salaries 22%, infrastructure and public works with a downward trend and debt service spending upward. Therefore, the responsiveness of expenditure has been weakened by income instability and debt growth (see Figures 5, 6, and 7).

As shown in Figure 7, the crisis brought a contraction in public spending that could not be recovered from the previous rates close to 20%, now rates are found just above 10%.

A A REVIEW O OF SUB-NATI IONAL GOV VERNMENT TS IN MEXIC CO

2011 1 2012 Figure 3. F Reven nues as GDP (g gross domestic p product) (annua al %). Source: p prepared with d data from INEG GI.

Fig gure 4. Evoluti on of state reve enue 2000-2012 2 annual variatio on (%). Source : prepared with h data from INE EGI.

19 991-1992 1992-1993 1993-19 19 994 994-1995 1996-1997 1997-1 1998-1999 1 1998 1999-2000 2000-2 2001 2 2001-2002 2002-2003 2003- -2004 2004-2005 2005-2006 2006 6 6-2007 2007-2008 2008-2009 2009 9 9-2010 2010-2011 2011-201 201 2 2-2013

Figure 5. Serie es sub-national spending rate g growth (annual %). Source: pr repared with dat ta from INEGI. .

A A REVIEW O OF SUB-NATI IONAL GOV VERNMENT TS IN MEXIC CO

2007-200 08 2008-20 009

2009-20 010

2010-20 011

Figure 6. Rate sub-nation nal public spend ding in the peri iod of financial recession (%). Source: prepar red with data fro om INEGI.

service an nd human resour rces

subsidies a and transfers

Public wo ork and social pr rograms

public deb bt

20 011 Figure 7. Main items of public expe enditure as a pe rcentage of tota al expenditure ( (%). Source: pr repared with da ata from

INEGI I.