Regional Policy and Fiscal Reform in Mexico

1
Regional Policy and Fiscal Reform in Mexico

• OECD Encounter with Mexican Legislators on Fiscal
  Policy and Public Finance
• Regional Competitiveness and Governace Division,
  OECD
• March 2007

2
The general argument A fiscal reform is needed
to foster economic growth
FISCAL
REFORM

Revenues

Public Investment

Investment
Economic Growth


Private Investment

3
But, the issue is not straight forward, there are
several details that can influence the outcome
FISCAL
REFORM





Local Revenues
Federal Revenues



Revenues

Public Investment
in areas i, ii, iii...
in regions x, y, z...

Economic Growth driven by
Investment
sectors a, b, c... and by

regions x, y, z...

Private Investment
in sectors a, b, c...

in regions x, y, z
4
Regional Policy can be a powerful complement to
Fiscal Reform to strengthen the dynamics
conducive to higher growth, reduce regional
disparities and increase competitiveness
FISCAL
REGIONAL
REFORM
POLICY




Local Revenues
Federal Revenues

-

-
Revenues



-
-
Public Policies (Education,
Public Investment
Health, Labour, Poverty
-
Regional
in areas i, ii, iii...
Alleviation...)
Disparities
-
in regions x, y, z...
Economic Growth driven by

Investment
sectors a, b, c... and by




regions x, y, z...

Private Investment
Competitiveness
in sectors a, b, c...

in regions x, y, z
5
Summing up
FISCAL
REGIONAL
REFORM
POLICY
Regional Policy as a tool to strengthen Fiscal
Federalism (Institutional Arrangements and
Sub-national Finance)




Local Revenues
Federal Revenues
-
Informality

-

-
Revenues


Regional Policy as a tool to orient policies to
reduce regional disparities (Place based
approaches)


-
Public Policies (Education,
Public Investment
Health, Labour, Poverty
-
Regional
in areas i, ii, iii...
Alleviation...)
Disparities
-
in regions x, y, z...
Economic Growth driven by

Regional Policy as a tool to foster regional
economic growth and competitiveness
Investment
sectors a, b, c... and by



regions x, y, z...

Private Investment

Competitiveness
in sectors a, b, c...

in regions x, y, z
6

• Supporting Slides

7
Central/Local Tax Revenue Distribution, 2000
Source OECD 2001, Tax and the Economy, A
comparative assessment of OECD countries
8
Orienting public investment to specific regions,
the case of Microrregiones
Index of Marginalisation
Source OECD based marginalisation data from
CONAPO
9
Most developed clusters in Mexico
In which sectors? In which regions?
10
State GDP growth relative to national growth,
1994-2004
Percentage point deviation from the national
average
Source INEGI, Producto interno bruto por
entidad federativa Cifras anuales del periodo
1993-2004
11
Territorial disparities in OECD countries, 1998
and 2003
Gini index of inequality in GDP per capita across
regions within each country

• Note Denotes Territorial Level 2 (states), the
  rest is at the lower level, TL 3
• Source OECD Regions at a Glance 2007
  (forthcoming)

12
Disparities in Regional Competitiveness, 2005
Index of Regional Competitiveness
Source OECD based on competitiveness data from
the Mexican Institute for Competitiveness
(IMCO-EGAP)