Redistributive Impact and Efficiency of Mexico’s Fiscal System

Abstract

A comprehensive tax and benefit incidence analysis is presented covering the redistributive fiscal instruments implemented in Mexico in 2008 and 2010, representative of the urban and rural sectors, as well as nationally. The expansion of basic social programs and effectively targeted direct monetary transfers have increased the progressivity of Mexico’s fiscal system in recent years. However, the overall redistributive impact of this system is limited by a comparatively unproductive tax system, a comparatively small share of resources allocated to direct transfers, and a significant share of spending tied to instruments with low redistributive effectiveness (subsidies to contributory social security systems, generalized consumer subsidies, and tertiary public education). The transition to a more effective and equitable fiscal system will require a comprehensive tax–benefits reform designed to improve tax productivity and benefit equity, combining a broad tax base with universally accessible public services and social protection.