OECD Economic Surveys: Mexico 2019

Description

Mexico's robust macroeconomic policy framework has supported moderate growth despite several headwinds in recent years. However, low productivity growth has hindered Mexico's convergence to higher-income OECD countries and inequalities remain high. These factors call for a renewed strategy to boost productivity and inclusiveness. Rising crime and insecurity are negatively affecting economic activity and citizens' wellbeing, particularly the underprivileged and women. Strengthening institutional quality is a priority. Improving the weak rule of law will also facilitate the effective implementation of policy initiatives in other areas. In spite of recent achievements, tax revenues remain low and fiscal policy has little redistributive impact. In the near term, improving the efficiency of tax collection and spending will allow the public debt-to-GDP ratio to stabilise and provide some room for greater social and infrastructure spending. In the medium term, raising tax revenues and modifying the tax mix will allow reductions in public debt, create further fiscal space and increase progressivity. Reducing high informality will require coordinated actions in enforcement, taxation, business and labour regulations and the social safety net to better align incentives to formalise and drive resources towards more productive (formal) firms. Increasing educational outcomes for all will increase equality of opportunities and build the foundations for higher productivity. Raising access to quality early childhood education and care will also encourage greater female labour market participation. Improving urban planning and transportation would raise the productivity potential of cities and improve environmental outcomes. SPECIAL FEATURE: STRENGTHENING INCLUSIVE GROWTH Basic Statistics of Mexico, 2017 Executive summary Key policy insights A renewed strategy to boost growth and well-being is needed A robust macroeconomic policy framework underpins moderate growth Monetary policy remains tight in response to an upsurge in inflation The central bank is improving the quality of monetary policy communication The financial sector would benefit from more competition and inclusion Making progress in increasing competition and boosting financial inclusion Fiscal policy: Ensuring fiscal space to finance higher social and infrastructure spending Moving towards a growth- and equity-friendly tax mix Corporate Income Tax (CIT) Personal Income Tax (PIT) Value-added Tax (VAT) Tax administration Improving the quality of social spending Strengthening fiscal federalism Strengthening institutional quality and the rule of law The quality of Mexico’s institutions is low The resourcing of key independent institutions has been significantly decreased Mexico’s high level of impunity highlights issues with the security and justice systems An evidence-based approach to security with greater accountability is needed While reforms have been positive, significant issues remain in the justice system Establishing and implementing an integrated approach to anticorruption and integrity Effective climate mitigation policies can help move Mexico to a strong and sustainable growth path Mexico has supported climate change mitigation early and vigorously Progress in pricing would help reduce carbon emissions efficiently A near-term priority is to reduce coal use and boost renewable energy References Annex A. Recent policy reforms Annex B. Quantification of the impact of structural reforms Thematic chapter Annex A. Recent policy reforms Annex B. Quantification of the impact of structural reforms Thematic chapter Chapter 1. Boosting inclusive growth Boosting productivity and sharing the benefits of growth more widely to raise prosperity for all Informality is a major driver of resource misallocation Reducing informality by reducing barriers to entrepreneurship and streamlining regulatory procedures Improving employment protection regulations Reducing taxes on labour Monitoring and policy evaluation Raising educational outcomes to combat informality and boost human capital Educational attainment and outcomes are low Mexico has undertaken important efforts to raise educational attainment and outcomes The education system needs to do more to reach disadvantaged students and schools Shift resources towards compulsory education and ECEC Expand ECEC and increase quality Improving governance of the education system Expanding and building effective VET systems Improving well-being, economic and environmental performance with better metropolitan governance References