Bargaining for a New Fiscal Pact in Mexico
The authors 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.
| Summary: | The authors 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. |
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