The impact of NAFTA and options for tax reform in Mexico

The North American Free Trade Agreement (NAFTA) has had a profound impact on Mexico's economy and institutions. Clearly, no consideration of tax reform can ignore its role. The thinking about tax reform in Mexico requires evaluating NAFTA's effect on Mexico's economy, including its tax structure, and the effects of its tax system on trade and capital flows between Mexico and its NAFTA partners, the United States and Canada. The authors review the evidence on NAFTA's economic effects, focusing on the changes in foreign trade and foreign direct investment flows in Mexico and the effects of these changes on Mexico's tax base and ability to raise tax revenues. Using marginal effective tax rate analysis, the authors also compare Mexico's tax system with those of Canada and the United States in terms of the effect on foreign direct investment. The authors draw two main conclusions from their analysis. First, by fueling Mexico's exports and foreign direct investment inflows, NAFTA has altered the country's economic structure and hence the industrial distribution of the tax base. This transformation calls for adapting the tax structure to an economy oriented toward services and manufacturing exports. And second, Mexico's membership in NAFTA provides no significant reasons for fundamental change in its tax structure. The new wave of tax reform should concentrate on raising revenues, simplifying the tax structure, and increasing the efficiency and overall equity of the tax system.Public Sector Economics&Finance,Economic Theory&Research,Environmental Economics&Policies,International Terrorism&Counterterrorism,Banks&Banking Reform,Economic Theory&Research,Environmental Economics&Policies,Public Sector Economics&Finance,Agricultural Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT

Stability of Gas Clouds in Galactic Nuclei: An Extended Virial Theorem

Cold gas entering the central $1$ to $10^2$ pc of a galaxy fragments and condenses into clouds. The stability of the clouds determines whether they will be turned into stars or can be delivered to the central supermassive black hole (SMBH) to turn on an active galactic nucleus (AGN). The conventional criteria to assess the stability of these clouds, such as the Jeans criterion and Roche (or tidal) limit, are insufficient here, because they assume the dominance of self-gravity in binding a cloud, and neglect external agents, such as pressure and tidal forces, which are common in galactic nuclei. We formulate a new scheme for judging this stability. We first revisit the conventional Virial theorem, taking into account an external pressure, to identify the correct range of masses that lead to stable clouds. We then extend the theorem to include an external tidal field, crucial for the stability in the region of interest -- in dense star clusters, around SMBHs. We apply our extended Virial theorem to find the correct solutions to practical problems that until now were controversial, namely, the stability of the gas clumps in AGN tori, the circum-nuclear disk in the Galactic Center, and the central molecular zone of the Milky Way. The masses we derive for these structures are orders of magnitude smaller than the commonly-used Virial masses (equivalent to the Jeans mass). Moreover, we prove that these clumps are stable, contrary to what one would naively deduce from the Roche (tidal) limit.Comment: Submitted. Comments welcom