Why Focuson Spending Needs Factors? the Political Economy of Fiscal Transfer Reforms in Mexico

Abstract

An equalization system ensures that subnational governments can provide similar level of public services at a comparable level of own tax-effort. This paper focuses on the importance of spending needs factors in the design of equalization transfers as well as special purpose transfers-and the role that this could have in setting the agenda for better accountability for recipient governments, illustrating both design and implementation questions with examples from Mexico. The paper also takes into account the difficult political economy constraints to reforming any system of transfers.Intergovernmental fiscal relations;Government expenditures;Economic reforms;tax effort, fiscal capacity, tax revenue, fiscal gap, tax collection, payroll tax, federal taxes, state taxes, intergovernmental fiscal, tax bases, fiscal affairs department, fiscal capacities, fiscal transfer, average tax rate, fiscal equalization, fiscal relations, total tax revenue, fiscal affairs, fiscal needs, capital expenditure, state tax, corporate income tax, fiscal capacity equalization, fiscal federalism, tax base, aggregate fiscal, fiscal equalization programs, public finance, tax instruments, fiscal equalization program, tax measures, fiscal transfer systems, intergovernmental fiscal transfers, fiscal transfers, taxation, fiscal policy, fiscal gaps