Tax Expenditures as a Tool for Economic Development [in Spanish]

Ethos Foundation, April 2012

The aim of this publication is to identify areas of opportunity in the field of tax expenditures to increase their impact on economic development in Mexico. The efficiency of tax expenditures as tools for economic growth is analyzed and recommendations for increasing their effectiveness are made.

The major conclusions describe the role of tax expenditures in Mexico and internationally, how the Mexican tax expenditure budget has progressed and digressed, and suggestions for more useful ways of classifying and reporting tax expenditures.

Read the report here

Mexico Better Equipped For Crisis Than In 1995 Recession

Wall Street Journal, 6/3/2009

pesos1As Mexico ploughs through its deepest recession since the crisis of 1995, revamped public finances and well-capitalized local banks put it on a much stronger footing than it had 14 years ago.

Mexico faces a perfect storm of a recession in the U.S., which buys 80% of its exports, a decline in global trade due to weakness in the major economies of Europe and Asia, and a domestic influenza epidemic in late April and early May that hurt service industries such as tourism and restaurants.

Today’s woes are largely the product of the international financial crisis and resulting global downturn, while the so-called Tequila Crisis was a home-grown disaster fueled by an overvalued currency, large public-sector deficits and government dependence on financing linked to the U.S. dollar.

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In February 2009, Guillermo Ortiz, Governor of Mexico’s central bank, wrote a commentary comparing Mexico’s relative levels of preparation for the Tequila crisis and the current global financial crisis.

See also an analysis by Bloomberg on how the swine flu outbreak has contributed to Mexico’s deteriorating economic climate.

Mexico needs “urgent” tax reform plan

Reuters, 5/18/2009

Mexico needs to quickly come up with a plan to tackle its growing fiscal problems, central bank Governor Guillermo Ortiz said on Monday, as Mexico struggles with a low tax take and sliding oil revenues.

Standard & Poor’s placed Mexico’s credit rating on review last week with an eye to a possible downgrade, citing the country’s heavy reliance on oil sales and doubts over the political will of the government to boost non-oil tax revenues despite sliding crude output.

“It is really urgent that once we are through the elections that a medium-term fiscal program be designed and passed,” central bank Governor Guillermo Ortiz said, referring to mid-term congressional elections in early July.

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Mexico rating under pressure, S&P signals downgrade

Reuters, 5/12/2009

Pressure over Mexico’s sovereign ratings increased on Monday as Standard & Poor’s signaled a possible downgrade later this year and a Moody’s analyst said his agency could also act soon if the country is unable to contain growing fiscal problems.

S&P revised to negative from stable the outlook on Mexico’s BBB-plus sovereign credit ratings. The agency warned it may downgrade them this year if the government fails to reduce its heavy reliance on oil revenues, which have been declining fast as a result of a global recession.

In an interview with Reuters, S&P analyst Lisa Schineller said the Mexican administration has signaled its intent to add some “fiscal enhancing measures” to the country’s 2010 budget.

“But it is not clear how deep those measures will be, how permanent they will be and also not clear how the political appetite will be” for approving the measures, she said.

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Mexico considers tax increases

Financial Times, 5/8/2009

Agustin Carstens
Agustin Carstens

Mexico is studying plans to introduce a wide-ranging tax reform, possibly as early as next year, that would increase taxes and allow the government to abandon its strict spending limitations during difficult times.

In a press conference on Thursday, Agustín Carstens, the finance minister, told a small group of foreign media that the country had to continue gradually increasing income from non-oil sources. “We have to start that process next year,” he said.

At the same time, the government was considering abandoning its current “zero-deficit” law in favour of one linked to the country’s economic cycle. While stressing the need for accumulating surpluses during the good times, Mr Carstens said that such a change would allow for greater spending flexibility in periods of low or negative growth.

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A presentation by Gary Hufbauer and Barbara Kotschwar at the Peterson Institute of International Economics provides more background on the economic situation in Mexico.

Latin nations fight economic slump with stimulus

Los Angeles Times, 12/16/2008

Facing an economic slowdown after years of brisk growth, Latin American nations from Mexico to Argentina have launched stimulus plans amid fears of recession, rising poverty and social unrest. Central banks have moved to stabilize currencies, boost employment and bolster consumer confidence in an attempt to limit the fallout from the global economic crisis.

Mexico, dependent on the flagging U.S. economy, has backed loans to small and medium-size companies. However, the Mexican central bank estimates that gross domestic product could grow less than 0.5% next year, down from an expected 3% rate in 2008. Remittances from people in the United States have been dropping, one indication of how hard times north of the border affect Mexico.

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