1. Regional Policy and Fiscal Reform in Mexico OECD Encounter with Mexican Legislators on Fiscal Policy and Public Finance Regional Competitiveness and Governace Division, OECD March 2007

2. Economic Growth Investment Public Investment Private Investment Revenues + + + + + FISCAL REFORM The general argument: A fiscal reform is needed to foster economic growth + +

3. Economic Growth driven by sectors a, b, c... and by regions x, y, z... Investment Public Investment in areas i, ii, iii... in regions x, y, z... Private Investment in sectors a, b, c... in regions x, y, z Revenues + + + + Local Revenues Federal Revenues + + FISCAL REFORM + + Regional Disparities - Competitiveness + + Is growth reducing Disparities? Is growth building regional competitiveness? But, the issue is not straight forward, there are several details that can influence the outcome + + + + + Driven by which sectors? By which regions? Is the current federal / local distribution adequate? In which sectors? In which regions? In which areas? In which regions?

4. Economic Growth driven by sectors a, b, c... and by regions x, y, z... Investment Public Investment in areas i, ii, iii... in regions x, y, z... Private Investment in sectors a, b, c... in regions x, y, z Revenues + + + + Local Revenues Federal Revenues + + - REGIONAL POLICY FISCAL REFORM + + + - + Regional Disparities- Public Policies (Education, Health, Labour, Poverty Alleviation...) + - + Competitiveness + - + + + - Regional Policy can be a powerful complement to Fiscal Reform to strengthen the dynamics conducive to higher growth, reduce regional disparities and increase competitiveness

5. Economic Growth driven by sectors a, b, c... and by regions x, y, z... Investment Public Investment in areas i, ii, iii... in regions x, y, z... Private Investment in sectors a, b, c... in regions x, y, z Revenues + + + + Local Revenues Federal Revenues Informality + + - REGIONAL POLICY FISCAL REFORM + + - + - + Regional Disparities- Public Policies (Education, Health, Labour, Poverty Alleviation...) + - + Competitiveness + + + + + - Summing up… Regional Policy as a tool to strengthen Fiscal Federalism (Institutional Arrangements and Sub-national Finance) Regional Policy as a tool to orient policies to reduce regional disparities (Place based approaches) Regional Policy as a tool to foster regional economic growth and competitiveness

6. Supporting Slides

7. Central/Local Tax Revenue Distribution, 2000 Source: OECD 2001, Tax and the Economy, A comparative assessment of OECD countries Is the current federal / local distribution adequate?

8. Source: OECD based marginalisation data from CONAPO Orienting public investment to specific regions, the case of Microrregiones Index of Marginalisation In which areas? In which regions?

9. Most developed clusters in Mexico In which sectors? In which regions?

10. State GDP growth relative to national growth, 1994-2004 Percentage point deviation from the national average Source: INEGI, “Producto interno bruto por entidad federativa; Cifras anuales del periodo 1993-2004” Driven by which sectors? By which regions?

11. Territorial disparities in OECD countries, 1998 and 2003 Gini index of inequality in GDP per capita across regions within each country Note: * Denotes Territorial Level 2 (states), the rest is at the lower level, TL 3 Source: OECD Regions at a Glance 2007 (forthcoming) Is growth reducing Disparities?

12. Source: OECD based on competitiveness data from the Mexican Institute for Competitiveness (IMCO-EGAP) Disparities in Regional Competitiveness, 2005 Index of Regional Competitiveness Is growth building regional competitiveness?