Bargaining for a New Fiscal Pact in Mexico

28 Pages Posted: 20 Apr 2016

See all articles by Steven B. Webb

Steven B. Webb

World Bank - Economic Development Institute

Christian Y Gonzalez

World Bank

Date Written: May 6, 2004

Abstract

Webb and Gonzalez 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, like raising 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.

This paper - a product of the Economic Policy Sector Unit, Latin America and the Caribbean Region - is part of a larger effort in the region to support the rationalization of the intergovernmental fiscal relations in the major federal countries.

Suggested Citation

Webb, Steven Benjamin and Gonzalez, Christian Y, Bargaining for a New Fiscal Pact in Mexico (May 6, 2004). Available at SSRN: https://ssrn.com/abstract=610337

Steven Benjamin Webb (Contact Author)

World Bank - Economic Development Institute ( email )

1818 H Street
Washington, DC 20433
United States

Christian Y Gonzalez

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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