Towards a new fiscal coordination

Written in
OPINION
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In fiscal federalism, the states and municipalities agree to coordinate with the Federation in terms of income and spending. The details of their relationship were established in the Fiscal Coordination Law, where the states have ceded certain tax powers to the Federation in exchange for receiving a share of the resources collected by the latter. In 2022, this relationship will result in a transfer of 2.1 trillion pesos, known as federalized spending.

One of the responsibilities of the states is to attend to the needs of their population. To achieve this, they have the resources of federalized spending; In addition, they obtain resources from their local collection and from their organizations and companies. However, the first element is the most important for the states.

But, how many resources do the states really have to meet the requirements of their population? To answer this question, we use the fiscal space per capita, that is, the resources available to address the situation per person. It is obtained by subtracting from income the expenses that must necessarily be made by the states, such as: payroll payments, debt services, transfers to municipalities and pension payments.

Once the fiscal space is obtained, the spending priorities of the states must be analyzed. This depends directly on the population and economic structure of the states, but, in general, the states spend more on education, security, infrastructure, health and pensions; limiting their spending capacity for other items such as housing, agricultural development, science and technology, among others.

However, even in the areas with the highest spending, not all needs are met. The covid-19 pandemic had serious effects on educational coverage in the states; and put the spotlight on the conditions of the state health systems that cover people without social security.

Even before the pandemic, starting in 2018 for example, states began to spend more on public security, but they have not been able to reduce their insecurity problems. On the other hand, spending on infrastructure in the entities, which is related to economic growth, depends directly on the resources sent by the Federation. And, regarding spending on pensions, the main problem is that it is unknown how much is allocated to this item at the local level.

Understanding these needs and on the way to a new fiscal coordination, the CIEP will present this June 22 a report containing information from the 32 states regarding their income, fiscal space and spending priorities (education, health, infrastructure, security and pensions, among other topics). We invite you to consult our findings and, above all, to promote sustainable public finances capable of facing the economic and population challenges of the future.

*Alberto Perez Pacheco

Investigator

Currently teaching at the School of Government and Public Transformation of the Tecnológico de Monterrey. She is an economist from the National Autonomous University of Mexico (UNAM) with studies at the Paris Institute of Political Studies (SciencesPo). In addition to public finance, he is interested in aging and migration, disciplines that he deepens in the Initiative for Economic and Demographic Transition (ITED). He currently collaborates in the CIEP as coordinator of local public finances. He works for the strengthening of subnational governments.