Economic Modeling White Papers

Public Spending in Mexico: How to Enhance Its Effectiveness

• Tags:
• economic modeling,
• tax,
• budget,
• term

Overview Public sector reforms and a refocusing of spending, partly through privatisation, have created a leaner and more effective government in Mexico. Primary expenditure, at around 18 per cent of GDP in 1999, is less than half the average for the OECD. At the same time, there are important spending requirements to create the basis for strong sustainable growth over the medium term. The backlog in basic infrastructure is considerable and areas such as education and health will require a steady expansion of budget resources. Specific measures to fight poverty are also needed. Inadequate tax resources and a heavy reliance on volatile oil-related revenue have been important factors impeding the development of essential public programmes. In this respect, given the sizeable marginal economic and social benefits of increasing spending in the above areas, it would be appropriate to raise the low tax-to-GDP ratio over the short to medium term. It is also essential that public spending be effective, which depends on improving the efficiency of the public administration. Since 1997, a comprehensive reform strategy has addressed many of the problems of administrative inefficiency. There are, however, still several areas in which public expenditure management and control can be improved, particularly via greater Congressional involvement and a streamlining of procedures within the Executive branch. Such changes should be consistent with the government’s ability to enforce a hard budget constraint. Recent moves by the Executive to simplify the currently complex process of spending approval are to be welcomed. Efficiency would be further enhanced if market-based instruments for the provision of public services were more widely used.

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