Publication: Strengthening Subnational Public Finance
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2013-04
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2014-01-17
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Mexico's intergovernmental transfer system needs to reduce vertical imbalances and discretionary federal transfers. This note assesses Mexico's pending subnational fiscal reform agenda. Mexico is a federal country divided into 31 sovereign states and one federal district. Each state is composed of municipalities. The fiscal federalism framework in this three-tier government structure consists of the set of laws, rules, and institutions that allocate spending and tax responsibilities and of the transfers and institutional framework for the subnational debt. Mexico has made great progress in strengthening its fiscal federalism framework over the past 10 years, but there is room for improvement. The pending Mexican fiscal federalism reform should focus on decreasing the large vertical gaps that states face, increasing local revenue mobilization, increasing the transparency and effectiveness of local expenditures, and strengthening the subnational borrowing framework to improve states' fiscal discipline. A clearer distinction between federal and state expenditure responsibilities, especially in the basic education sector, could improve service delivery. A more transparent debt reporting is also needed to strengthen subnational fiscal discipline.
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“World Bank. 2013. Strengthening Subnational Public Finance. Mexico policy note;no. 10. © World Bank. http://hdl.handle.net/10986/16582 License: CC BY 3.0 IGO.”
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