TAX EFFORT AND TAX POTENTIAL OF

STATE GOVERNMENTS IN MEXICO:
A REPRESENTATIVE TAX SYSTEM
Horacio Sobarzo
Working Paper # 315 - October, 2004

Horacio Sobarzo received his PhD in Economics from the Department of Economics at
the University of Warwick in 1990. He is professor in the Center for Economic Studies at
El Colegio de Mexico, where he was director from 1997 to 2003. His main research areas
are applied topics of public finance and international trade. He has published both articles
in specialized journals and books on these topics. He teaches various courses at the
postgraduate level at El Colegio de Mexico and other institutions in Mexico and was a
visiting fellow in the spring semester of 2004 at the Helen Kellogg Institute for
International Studies of the University of Notre Dame.
Keywords: fiscal federalism; tax effort; tax potential; fiscal decentralization;
intergovernmental relations, representative tax system.

ABSTRACT
Over the last two decades, Mexico has modified its intergovernmental fiscal structure
from a very centralized system to a distorted scenario where state governments have
gained substantial expenditure functions and most of the taxation responsibilities have
remained in the federal government. It is argued that to move towards a more fiscally
responsible scenario, some decentralization on the taxation side is needed. In this context,
by constructing a representative tax system (RTS), this paper evaluates tax effort and tax
potential in Mexico. The results are a useful input for policy decision making, not only in
the event of future tax decentralization attempts but also in designing a new transfer
scheme. The results are also the first RTS constructed for the Mexican case, and show
that regional data in Mexico is gradually improving. Also, while the results shed some
light as to which taxes could potentially be decentralized, the article warns about the fact
that regional disparities in the country may well be a limitation on the extent to which
taxes can be decentralized.
RESUMEN
Durante las últimas dos décadas México ha transformado su estructura fiscal
intergubernamental, pasando de un sistema muy centralizado a un escenario
distorsionado en el que los gobiernos estaduales han adquirido importantes funciones de
gasto y la mayoría de las responsabilidades de imposición permanecieron en el gobierno
federal. Se sostiene que para moverse hacia un escenario fiscalmente más responsable se
necesita alguna descentralización del lado de la imposición. En este contexto, este trabajo
evalúa, a través de la construcción de un sistema impositivo representativo (SIR), el
esfuerzo impositivo y el potencial impositivo en México. Los resultados son un insumo
útil para la decisión de políticas, no sólo para posibles intentos futuros de
descentralización de la imposición sino también para diseñar un nuevo esquema de
transferencias. Los resultados constituyen también el primer SIR construido para el caso
mexicano y muestran que en México los datos regionales están mejorando gradualmente.
Asimismo, si bien los resultados arrojan alguna luz acerca de cuáles impuestos podrían
descentralizarse, el artículo advierte que las disparidades regionales en el país pueden
bien pueden limitar la medida en que los impuestos puedan descentralizarse.

1. INTRODUCTION
Formally, Mexico has traditionally been a federation. In practice, however, for
several decades in its recent economic and political history, the country was organized in
a very centralized manner. For most of the decades that followed the Mexican Revolution
(1910–1917), the federal government played a leading role in pursuing national
development policies.
In this regard, the fiscal arena was not an exception. During the second half of the
twentieth century, the federal government gradually came to play an important role,
originally by strengthening the tax authority of an originally fragmented and weak
market, and later by practically monopolizing not only public spending but also the
collection of the major sources of tax revenues. This process reached its peak in 1980,
when extra public revenues from the oil boom allowed the federal government to carry
out a major fiscal reform, which among other things, introduced the value-added tax
(VAT) and simplified the whole tax system. As a result of these changes, state
governments transferred practically all their major tax responsibilities to the federal
government. In exchange for this, the federal government designed a transfer system that
more than compensated states for the losses implied by the changes. These arrangements
constitute the basis of what became known as the National System of Fiscal Coordination
(SNCF), which is still the legal framework whereby tax coordination between the federal
and state governments occurs.
On the expenditure side, during the 1980s the system was also heavily
concentrated at the federal level and, even more importantly, the territorial allocation of
federal resources was not subject to any explicit criteria other than the general guidelines
set out every year in the National Development Plans. In practice, this meant that there
was a lot of room for discretional decisions. Indeed, the decade can be characterized as a
period that lacked fiscal accountability.
During

the

nineties,

as

political

democratization

increased,

important

decentralization processes were initiated in areas like education, health, and social
expenditures. While these processes have not been free of obstacles and difficulties, the

mobile economic units should be taxed by lower levels of government. fiscal responsibility is . compared to the previous decades. “If local governments provide local inputs that increase the productivity of capital employed in their jurisdictions. literature on inter-jurisdictional competition suggests that on efficiency grounds.1 That is. however limited this decentralization might be. the excessive centralization in Mexico over the previous decades was clearly not beneficial insofar as accountability and. but because there is too little. “problems of fiscal discipline may result not because there is too much fiscal decentralization.” In this line of thought. some international experiences are illustrative (see Jones et al. However there are important reasons why a system of intergovernmental fiscal relations with the characteristics of the Mexican system would move further towards a more decentralized tax regime. lower levels of government should not tax mobile economic units. where state governments have gained substantial expenditure powers and their tax generation capacity is very limited. the concentration of tax capacity continues to be on the federal government. it is possible to design a transfer system that reproduces a fully decentralized regime. as suggested by Sempere and Sobarzo (1998). However. As Oates and Schwab (1988) put it. As suggested by Wildasin (1998).” And finally. In theory it is always possible for a central government to collect taxes and by means of an appropriate transfer system. distribute resources to sub-national governments. then they should levy benefit taxes on capital in order to provide the set of signals needed for the efficient deployment of capital across localities. Gordon (1993) shows that under certain (restrictive) conditions. the fiscal system is now far more transparent. despite the fact that the formula for distributing resources has been modified several times. theoretical work suggests that when a transfer system is “too large” this is often at the expense of financial self-discipline on the part of sub-national governments (McKinnon and Nechyba 1997). Mexico thus has a very distorted scenario. whenever they benefit from the public services provided in the region. First. there is a consensus in the economic literature that to avoid economic distortions.2 Sobarzo resources that were decentralized are now subject to formulas and/or criteria known to every one. Second. These processes of decentralization have occurred only on the expenditure side. On the revenue side. more generally. 2000 and Dixit and Londregan 1998).

To do so. and because even in the event of a more limited reform modifying the present transfer formula. This is explained in part by the lack of information on the territorial origin of the main taxes imposed by the federal government (income taxes and VAT) and in part too by the lack of regional statistical information in Mexico. unless it is accompanied by partial decentralization of tax responsibilities.2 The purpose of this paper is to evaluate state tax effort and state tax potential in Mexico. RTSs are normally heavy regional-data-demanding systems and it is perhaps this last point that explains why the RTS presented here is the first effort of this nature in Mexico. analyzing not only the state tax effort of the operating state taxes but. a Representative Tax System (RTS) for Mexico has been constructed. to state governments. However. indicators of tax performance are necessary. The reader should note that the RTS presented is not a particular proposal for tax decentralization or a proposal in favor of a particular tax for decentralization. regional statistics have improved not only in terms of quality but also in terms of quantity. and unlike experiences in Argentina and Brazil. while this document tries to provide useful estimations for future reforms based only on economic efficiency criteria. how far. The results presented here intend only to provide input information. From the Latin American comparative perspective it is important to mention that despite this distorted scenario between revenues and expenditures. even if partially. More decentralization does not necessarily mean more accountability. Finally. very much depends on additional factors.3 Sobarzo concerned. This was done for taxes that the federal government levies now but could potentially transfer. Fortunately. more importantly. state tax potential. For . RTSs have often been constructed for other countries and the methodology is certainly not new. It is important to mention that this article presents an original contribution. Also. over the last few years. The results are a useful input for public policy decision making because they shed light on to how to delineate a tax decentralization strategy. state governments in Mexico have had a relatively limited borrowing capacity. whether or not Mexico will move in this particular direction and if so. which helps us to understand the relatively more disciplined financial situation at the sub-national level. The decision about which taxes should be decentralized and to what degree goes beyond the purpose of this document. Ours are the first estimates of this kind in Mexico.

THE MEXICAN CONTEXT 2. the Sistema Nacional de Coordinación Fiscal or National System of Fiscal Coordination (SNCF) is still in place in Mexico. At that time not only was a Value-added Tax (VAT) introduced but the whole tax system was simplified. at the state level. a strong federal government is needed for income redistribution purposes (mainly in the form of assistance to the poor). Before 1980.1. it is not clear at all which level of government has the incentives to press for tax decentralization. at the same time. It has in practice transferred the bulk of the tax responsibilities to the federal government. rather than taxation. but its general characteristics are the result of an intergovernmental coordination scheme that resulted from a fiscal reform in 1980. Section 4 comments on some of the results and findings. a sales tax—Impuesto Sobre Ingresos Mercantiles or ISIM—was collected and the central government retained 60 . Section 3 presents a short description of the methodology followed in carrying out the RTS estimations. whereas the federal government. seemed reluctant to give state governments more tax responsibilities. 2. Not only was the winning president in the year 2000 not a member of the PRI. This coordination scheme. the composition of governors is much more diversified in terms of political parties. Finally. Section 5 presents the main conclusions. The contents of this paper are as follows. but also. State governments seem to be more interested in getting extra resources from transfers. since it meant losing political control. which save them a political cost. Section 2 presents a brief description of the evolution of fiscal intergovernmental relations in Mexico over the past two and a half decades. where tax decentralization is needed for improving fiscal responsibility and. Another point that is not addressed here but is essential to understand the possibilities of reform is the political scenario that is also very different from the previous two decades.4 Sobarzo instance. Recent Evolution Fiscal intergovernmental relations in Mexico have changed over the past decades. we do not address the issue of how far a tax decentralization process can go in a country like Mexico. at least during the 1980s and 1990s. and describes the federal and state governments tax structure in Mexico. In this context.

during the 1980s expenditure decisions were mostly taken at the federal level and. that scheme also required that state governments transfer the tax collection capacity of the main tax basis to the central government. However. As a result of these modifications some states have benefited relatively more than others. for each peso transferred to state governments. That is. the system . With the introduction of the VAT. state governments have all benefited from this agreement because despite the poor fiscal performance of the country over the last several decades. while in the 1980s the system was heavily reliant on the central government. in the 1990s important changes occurred. in the period 1980-2002 the participaciones have grown at an average annual rate of 4 percent in real terms. on average. in general. overall.17 are based on the territorial origin of a tax known as Impuesto Especial a la Producción y Servicios (IEPS)3. However. At present the taxation system is heavily concentrated in the federal government and it will be discussed in detail in the next subsection.5 Sobarzo cents out of each peso collected. 45. During the following years the criteria for distributing transfers to state governments were modified several times. At present. On the expenditure side. and the remaining 9. while the remaining 40 cents were for the state governments which had collected the tax. nearly 90 percent of any state’s income comes from participaciones. especially the most populated ones. Trying to summarize the present situation on the income side. the introduction of the VAT in general resulted in more revenues for all state governments. Indeed. moving expenditure responsibilities from the federal to state governments.17 cents are based on the size of the population. we can say that the scheme of fiscal coordination adopted in 1980 brought extra resources to state governments in the form of unconditional transfers (participaciones). After the VAT introduction in 1980 they received at least the amount of revenues they used to collect from the previous sales tax. Here it will suffice to note that. the tax responsibility was fully transferred to the federal government and state governments received unconditional transfers (participaciones) in exchange. 45. States began to receive participaciones according to a compensatory criterion. Yet.66 cents are in inverse relation to the previous two criteria. this last criterion seeks to compensate those states that benefit relatively little from the first two criteria.

these formulas used to obey an historical inertia or were designed to incorporate several regional criteria. In the 1990s an important process of decentralization started in the areas of education and health. approximately 0. which is quite a significant amount. Today these funds are subject to stable formulas known to everybody. over the last two decades (1981-2000). excluding social security. . represented 18. given that the states’ own tax revenues represented no more than 0.2 percent were state and municipal revenues. In cases like education expenditures. all these modifications over the last two to three decades have created a very distorted scenario in which state governments have been getting increasing expenditure responsibilities and. In addition.9 percent of GDP. very limited tax capabilities to generate their own resources. Thus. the federal government has to transfer to state governments. by law.6 percent each (see Table 1). Adding both conditional and unconditional transfers to state governments. The next section analyzes the tax structure of these two government levels in Mexico. but was also highly discretionary and often used to influence elections (see. Molinar and Weldon 1994). Tax Structure A high proportion of tax revenues in Mexico accrue to the central government. the resources transferred to state governments have increased significantly. at the same time. on average. but subsequently it was incorporated in the so-called “Ramo 33. Unlike in the 1980s when there were no rules for allocating federal funds. 2.” The Ramo 33 is a proportion of the budget that. This led to a system that was not only concentrated at the federal level. These processes continued throughout the decade and extended to some other areas such as social expenditure.2. Also.6 Sobarzo lacked rules for allocating expenditures.6 percent of GDP. and only 1. For instance. total public revenues. Ramo 33 funds are conditioned transfers from the central State to state governments.6 were revenues collected by the federal government. for instance. as was also the case of some funds in the area of social expenditures. it was originally negotiated in Congress on a contingent basis. of which 17. in 2000 they represented seven percent of GDP. Known as PAFEF. Taken together. the changes in the 1990s led to a much more transparent scenario. an additional fund was created in 2000.

1 2.6 2. and a federal tax on car ownership. In addition. 1981–1990 16. and taxes on gasoline. Federal revenues Oil taxes Non oil taxes Non tax revenues B. state governments levy several taxes too but all of them of relatively reduced bases.7 1.5 TABLE 2 Main State Taxes Taxes 1 2 3 4 5 6 Number of States Hotel Occupancy Payroll Lottery Amusements and Public Spectacles Local Car Ownership (Tenencia Local) Other • Purchase-Sale of Mobile Goods • Purchase-Sale of Immobile Goods • Personal Remuneration • Professional Services • Public Instruments and Contracts • Direct Several Taxes • Other Source: Finanzas Públicas estatales y municipales de México.6 10.6 1.8 2.8 2.7 3. 1998-2001. In turn. Social security C. alcohol and tobacco (IEPS).9 10.6 3.1 1991–2000 18. a few other minor federal taxes are foreign trade taxes.1 22. It .7 Sobarzo TABLE 1 Mexico Public Revenues as a Percentage of GDP A. although the revenues from these last two taxes are fully transferred to the states.9 1.5 4.9 1981–2000 17. VAT.2 20.2 21. taxes on new automobiles. 27 23 22 15 13 32 A very high proportion of federal revenues come from the so-called wide base taxes: income taxes. INEGI. State and Municipal revenues Total income (A+B+C) Source: Ministry of Finance (SHCP).8 4.3 1. oil taxes. Table 2 describes the main state taxes.2 10.

Also. Thus Table 2 also shows how many states levy each tax. while Table 3 shows how many taxes are levied by each state. the most common taxes by . TABLE 3 Number of Taxes Levied by States Mexico. 2003 State 12 02 08 14 18 29 05 09 13 26 31 01 03 06 07 10 17 20 27 15 16 21 22 24 28 30 32 19 23 25 04 11 Guerrero Baja California Chihuahua Jalisco Nayarit Tlaxcala Coahuila de Zaragoza Distrito Federal Hidalgo Sonora Yucatán Aguascalientes Baja California Sur Colima Chiapas Durango Morelos Oaxaca Tabasco México Michoacán de Ocampo Puebla Querétaro de Arteaga San Luis Potosí Tamaulipas Vera Cruz-Llave Zacatecas Nuevo León Quintana Roo Sinaloa Campeche Guanajuato Number of Taxes 9 8 8 8 8 8 7 7 7 7 7 6 6 6 6 6 6 6 6 5 5 5 5 5 5 5 5 4 4 4 3 3 Table 3 shows Guerrero is the state that imposes the most taxes (9). while Guanajuato and Campeche levy only three taxes each.8 Sobarzo should be noted that not all taxes are necessarily imposed by all states.

These three taxes are also the most important in terms of the amount of revenues they generate at the state level. Also. the equity characteristics of the tax system in Mexico are in the hands of the federal government. it should be noted that all the taxes imposed by states are regressive in the sense that their tax rate does not depend on income levels. . the income tax. Source: INEGI (2003a). whereas the typical progressive tax in Mexico. More than 90 percent of state tax revenues come from these three sources. which is a common practice in most countries.9 Sobarzo state are Hotel Occupancy (30 states). Lotteries (27 states) and Payroll (23 states). is levied by the federal government. In other words.

ESTIMATION OF TAX EFFORT AND TAX POTENTIAL 3. . in all cases. in fact. The second part describes the taxes to be considered in the analysis. The Conceptual Basis of a Representative Tax System (RTS) The first part of this section presents a brief description of the methodology followed in estimating both tax effort and tax potential in a framework of what is known as a representative tax system (RTS). State governments vary according to the number of taxes they impose.4 This approach is conceptually simple and.1. However. 3. In summary. unlike an econometric approach.10 Sobarzo Source: INEGI (2002a). the analysis of the tax structure by government level in Mexico confirms that tax revenues are heavily concentrated in the federal government since it levies the taxes whose tax bases are widest. only three of these seem to be relatively important in terms of revenue generated at the state level. RTSs are a very common instrument for analyzing tax effort in different countries. state taxes correspond to relatively reduced tax bases and. The details of how tax base values were estimated and the corresponding data sources are presented in the appendix.

thus generating an absolute value of tax potential for each state. Then the tax base value is multiplied by the average tax rate. What we need is a direct indicator of (or a good proxy for) tax potential.11 Sobarzo RTSs give more insight into the particular contribution of specific taxes to the relative accumulated tax effort. thus avoiding the use of a tax base value as defined in the tax laws. = the national average tax rate for revenue source or tax j. The essence of the methodology consists of estimating. however. It also generates an estimation of tax capacity deficiencies in the poorer states. is that RTSs are very demanding in terms of data requirements. TCsj = actual tax collection in state s from tax j. The cost of that. an average effective tax (non-weighted). This number represents the amount of tax revenue that each state could collect if it were exploiting its potential tax base to an average degree. the procedure for estimating the TPIU can be described as follows: TPIUsj = TCsj/TPsj where TPIUsj = tax potential index use of state s and tax or source revenue j. The next step is to calculate. for each tax. Dividing real tax collections by potential tax collections calculates a Tax Potential Index Use (TPIU) as well as a ranking of state tax effort. In a more formal way. TPsj = potential tax collection in state s from tax j. and TPsj is defined as TPsj = tj*(Bsj) where Bsj tj* = tax base value of tax j in state s. As a final stage of the process. an effective tax rate. adding all these amounts generates the amount of tax revenues that each state would be able to collect under the representative tax system. for each state and each particular tax. and tj* is estimated as tj* = ∑tsje/s . defined as the ratio between tax collection and tax base value. The tax base should be a reasonable measure of tax capacity.

In the evaluation of state tax effort. What matters then is the overall tax effort of each state. different from the tax base as defined by the tax code. a group of taxes. Finally. the methodology has several limitations. the data on tax basis are not always sufficiently disaggregated. since we need a reasonable value or a good proxy. differences in terms of the impact of per-capita incomes on tax potentials are not accounted for. In deciding which taxes to analyze.12 Sobarzo where tsje is the effective tax rate of tax j in state s.5 . like regional tax data on the main taxes. thus leading to valid and useful policy recommendations. Despite these limitations. we tried to include not only the most important in terms of revenue. and is calculated as tsje = TCsj/Bsj These estimations refer to relative state tax effort. they still are insufficient and in some cases. but also as many as possible. the fact that individual taxes can be linked to a potential tax base allows for a better understanding of relative tax effort. since there are no absolute measures of tax effort or tax potential. or the whole tax system. the information simply does not exist. even though regional statistics have improved over the last decade. First. the conceptual challenge of this exercise is to find a good measure of tax base value for each tax. Second. Clearly. Third. the selection of independent variables (tax bases) is to some extent subjective because they cannot be subjected to a proof of statistical significance. Finding appropriate tax base values is challenging for a country like Mexico where. so that some differences in tax capacity among states may remain hidden. it very often happens that particular taxes perform very well in some states and not so well in others. These elements had to be considered in the strategic decision of defining which taxes should be included in the analysis. the results compare each individual state against the national average for a particular tax. That is.

2. The list is as follows: State Taxes -Payroll -Hotel occupancy -Amusement and public spectacles -Lotteries -Other . and to group several minor taxes in a single category. and tobacco (IEPS) -Federal car ownership (Tenencia Federal) -New cars (ISAN) The revenues of the last two are fully transferred to state governments according to where the revenue was generated. Taxes considered in the analysis With the exception of the tax on oil exports and foreign trade taxes. They are incorporated in the analysis because they are potential candidates for decentralization. The list of included federal taxes is as follows: Federal Taxes -Personal income tax -Corporate tax -Value-added tax -Tax on gasoline. Insofar as existing state taxes are concerned. a strategic decision was taken to consider the most important ones explicitly.2. It is important to mention that income tax and VAT are both levied by the federal government. alcohol. Determining the Universe of Taxes and Estimating Tax Base Values 3.1. Most of them were included in an explicit manner while a few of the less important in terms of revenue were grouped in a single category. all the existing taxes in Mexico were incorporated in the analysis.13 Sobarzo 3.

which allows us to classify data by state. the existing data on tax collection revenues by state is based on where the firm declared their taxes. Also. whenever possible we estimated tax base values using different proxies to get more robust results. In the case of small firms operating in a single state this should not be problem. these . For firms operating in more than one state. Therefore. but not where the transaction that was taxed occurred. but several data bases are not published yearly. This is significant problem because many firms. according to the 1999 economic census (INEGI 1999). Estimating tax base values This section is devoted to making some general comments on some data problems. who allocated both taxes according to the state where the revenues were generated. Finally. it is not very useful because it reflects where the tax was declared. It would have been convenient to estimate tax base values for more than one year to avoid errors or extreme behaviors. While official data on tax revenues by state exists concerning VAT and income taxes. Hopefully. Their exercise was based on information from the 2000 income-expenditure survey by INEGI (2002b).8 percent to the GDP of the country and. collected 54. Given this situation as far as data was concerned.6 percent of VAT. it was necessary to estimate the territorial origin of both income tax and VAT. estimating the difference between the overall surplus by state minus interest payments and depreciation. To provide an idea of how distorted the data may be. Insofar as the corporate tax is concerned. The data sources for the taxes considered here are described in the appendix. especially large and medium firms. operate in several states but for tax purposes register an address (usually in a big city like Mexico. Guadalajara or Monterrey). the data is not accurate for our purposes. suffice it to mention that in 2000.2 percent of total personal income tax and 46.14 Sobarzo 3. They estimated both the consumption and income structure in order to estimate the structure of personal income tax and VAT. they allocated the tax by state.2. to the extent that we are using different data sources it is possible that some data inconsistencies are present in the estimations. according to the data on taxes.2. Mexico City contributed 22. For that purpose we used the estimations of Gamboa and Messmacher (2002). distinguishing between personal income tax and corporate tax.

Starting with federal taxes. depending on the tax being analyzed.1. Colima. VAT. 4. Nuevo Leon. For instance. the year of reference is 1998. A value equal to 1 simply means that this state tax effort is equal to the national average. assuming that it is very unlikely that in a year or two structures changed substantially. Although results vary from tax to tax. an outstanding point in the cases of VAT. Veracruz. By Kind of Tax Table 4 reports the value of the TPIU for all states and for all the taxes considered in the analysis. we took only the relative structure and applied it to the totals of the year 2000. corporate tax. First. our year of analysis was the year 2000. the results for personal income tax. Second. However. and Estado de Mexico. Values above 1 correspond to states whose tax effort is superior to the national average. when it came to comparing the tax performances of states. whereas in some cases. both best and worst tax performances correspond to states classified as relatively more advanced from the economic point of view. with few exceptions. and Campeche. even though we relied on different data sources. such as Jalisco. like the economic census. are reported in columns 1 to 5. among the states showing the best tax performances are Baja California Sur. At the opposite extreme. when the source was not referenced to the year 2000. and IEPS is that. Aguascalientes. .15 Sobarzo inconsistencies should not be very important for two reasons. among the worst tax performers are relatively rich states too. Puebla. personal income tax. Index values that are below 1 mean that the tax effort of a particular state is below the national average. we always used the same data source for all the states levying a particular tax. Distrito Federal. for instance. IEPS. ANALYSIS OF RESULTS 4. and ISAN (new cars).

87 0.53 0.13 0.04 0.82 0.87 0.43 2.03 0.83 0.89 0.23 1.45 0.66 3.00 0.51 .97 2.57 1.84 2.46 0.56 0.30 0.35 1.62 0.01 1.54 0.81 1.62 0.48 2.93 0.75 2.55 0. However. First.07 1.46 0.51 1.52 0.61 0.43 0.40 0.17 1.05 0.49 1.81 0.07 0.17 0.11 0.82 2.49 0.20 Amusements (9) 3.83 1. Tax (3) 0.78 4.92 1.99 1.62 1.29 0. and there is growing tax evasion and tax elusion.36 0.40 0.21 0.12 1.24 2.16 0.59 0.98 0.61 0.82 0.25 0.57 1.97 0.39 0.62 0.00 0.38 0.78 0.00 0.30 0.17 1.77 0.27 0.41 1.29 1.55 0.42 0.56 0.80 0.82 1.65 0.25 1.82 0.01 0.36 0.97 0.02 0.36 0.39 1.71 0.50 Lotteries (10) 0.69 0.11 0.74 0.48 1.01 Corp.74 2.09 0.92 0.49 1. there are two explanations for the results.91 0.00 1.65 1.05 1.20 1.16 1.86 0.97 1.81 0.82 0.38 1.06 0.98 1.06 0.60 3.26 1.72 0.17 0.53 1.79 1.84 0.74 1.98 1.39 0.33 0.45 3.92 0.68 0.54 0.09 0.37 Payroll Hotel (7) (8) 0.62 0.86 0.99 0.81 0.52 0.36 0.64 1.61 1.00 1.58 1.24 0.41 1.03 1.31 New Cars (5) 1.26 0.53 2.38 2. one consequence of the low economic growth and poor fiscal performance of the last twenty five years is that an increasing share of the economic activity is in the informal sector.19 These results appear to be counterintuitive.56 0.49 0.95 1.36 0.40 0.40 0.87 1.81 0.77 1.40 2.83 0.70 0.93 1.01 1.50 0.05 0.66 1.51 0. These Other (11) 0.99 1.18 0.53 1.11 0.31 2.11 0.62 1.07 5.20 1.29 0.44 0.37 0.98 0.90 0.64 0.87 1.83 1.30 1.02 0.30 0.55 2.00 3.10 0.57 0.67 0.29 0.71 0.38 1.13 0.26 1.59 2.99 0.04 0.10 1.14 0.22 1.21 0.92 0.44 0.72 0.15 0.48 1.32 1.02 0.06 0.92 0.51 2.68 0.27 0.56 0.57 1.12 0.35 0.64 1.88 0.69 1.63 0.61 1.14 0.54 0.75 1.61 0.05 0.35 1.49 1.86 1.51 0.45 1.72 0.82 0.23 0.43 0.63 0.43 0.12 VAT (2) 1.70 1.80 0.84 0.84 0.09 0.70 0.17 0.18 0.27 0.59 1.13 1.23 1.57 0.10 0.16 Sobarzo TABLE 4 Tax Potential Index Use of Individual Taxes by States State 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Aguascalientes Baja California Baja California Sur Campeche Coahuila Colima Chiapas Chihuahua Distrito Federal Durango Guanajuato Guerrero Hidalgo Jalisco México Michoacán Morelos Nayarit Nuevo León Oaxaca Puebla Querétaro Quintana Roo SanLuis Potosí Sinaloa Sonora Tabasco Tamaulipas Tlaxcala Vera Cruz-Llave Yucatán Zacatecas Income Tax (1) 1.71 0.60 1.68 0.58 0.08 0.70 0.80 1.06 2.31 1.85 0.31 0.85 0.02 0.66 0.50 IEPS (4) 2.62 0.75 1.55 0.55 0.62 0.77 1.49 Taxes Car Owner (6) 1.77 2.11 0.13 0.44 0.59 0.07 0.90 0.97 5.74 0.00 0.89 2.36 0.75 4.27 1.20 0.18 0.20 2.91 0.64 1.92 1.66 0.04 0.25 0.55 0.48 0.55 1.98 0.

Baja California. and Guerrero. the existence of tax evasion is more unlikely. at the same time. Among the states having the best performances are Mexico City. and Jalisco. as is the case of Mexico City. and the revenues are fully transferred to the states . Zacatecas. Aguascalientes.17 Sobarzo consequences normally appear in large urban areas. in this case it is more difficult to find an explanation for its behavior. degree of economic development. The analysis of state taxes is more complex because not all taxes are imposed by all states. these states are relatively more advanced and. The result also makes sense to the extent that the states showing poor tax performances characteristically have a high number of illegal cars. Quintana Roo. Guerrero. they also suffer the largest proportion of informal and illegal activities. as is the case with Baja California or Chiapas. all of which are the capitals of their states. Perhaps an important consideration is that. since states may differ substantially in their economic specialization activities. In other words. as is the case of the oil and electricity companies (PEMEX and CFE). given that the tax is on new cars. In other words. and Toluca.6 The case of the tax on new cars (ISAN) shows behavior opposite to the three taxes discussed above. as is the case in Oaxaca. Tlaxcala. therefore. its main economic activity. Tlaxcala. and Chiapas. Puebla. it is likely that particular states may perform differently. do not suffer the concentration effects of the “too large” cities. Nayarit. location. Zacatecas. depending on the state. the best performances occur in states where a single public firm plays a very important role in the local economy. shows the joint (aggregated) behavior of federal (Tenencia Federal) and state taxes (Tenencia Estatal).7 The last federal tax is the corporate tax. with the exception of Coahuila. or are located on an international border. Tamaulipas. The worst performances occur in states like Oaxaca. Also. although these states are expected to be the main contributors to tax revenues. and so on. or Baja California Sur. The federal tax applies to all states. Nuevo Leon. Unlike the previous federal taxes. such as Colima. in Column 6 of Table 4. The car owner tax (Tenencia). Monterrey. Nayarit. A second important reason is that the best tax performances occur in states that are relatively rich but have medium-sized capital cities. The results are not surprising because. belonging to Mexican immigrants to the US who return home from time to time. Guadalajara. the activity takes place only in the formal sector and.

not surprisingly. Thus. some interesting points emerge. and Chihuahua. Veracruz. The next tax is the Payroll Tax. and it is not only measured by the amount of revenue collected but also by the number of states levying the tax (23 in total). The results are interesting because both best and worst performances occur in . which send migrants to the US and. The worst performances correspond to Morelos. it is more difficult to be detected. Nuevo Leon. and Jalisco. The first two states are characterized by large rural areas. The performance of this tax among states is therefore. Mexico. At the opposite extreme. Tamaulipas.18 Sobarzo whereas the state tax is imposed in only 13 states. and Jalisco. While it is difficult to establish a clear pattern of behavior. Quintana Roo. Oaxaca. Baja California. Tabasco. This is the main state tax. and Quintana Roo. and San Luis Potosi. and Mexico City. unlike in urban areas. Without providing empirical evidence. The best performances correspond to Campeche. Among the best state tax performances are Baja California Sur. Distrito Federal. Quintana Roo. Baja California. they are the states where most of the illegal cars end up. Nuevo Leon. the remaining states mentioned as best performers all have important degrees of economic diversification. on Hotel Occupancy. Tamaulipas. is imposed by 27 states (Column 8). Durango. On the other hand. and applies only to cars older than 10 years. The last three states have major cities on the border with the United States. Baja California Sur. Baja California Sur. in Column 7. Chihuahua and Tamaulipas. the best tax performances occur in Mexico City. Nayarit. similar to the tax on new cars mentioned above. Nuevo Leon. Coahuila. Chihuahua. like Mexico City. The worst performances are by San Luis Potosi. because of that. and Hidalgo. the worst performances occur in states like Zacatecas. most of the states showing the worst performances are in less diversified and less industrialized regions that are more oriented towards agriculture. State of Mexico. State of Mexico. Its performance is associated with the existence of illegal vehicles or imported used cars in the border cities. Tabasco. Nuevo Leon. it appears that illegal vehicles tend to go to large rural areas where. Puebla. The cases of Quintana Roo and Campeche are explained by the importance of the oil company PEMEX in Campeche and tourism activity in Quintana Roo (Cancun). and to a lesser degree. Chiapas. The tax that follows. With the exception of Campeche and Quintana Roo. Zacatecas. Nayarit.

Tlaxcala. states showing the worst performances are characterized by a less developed tourism infrastructure and/or by receiving mainly domestic tourism. However. strictly speaking. On the other hand. and the results are reported in Column10. Column11 reports the remaining minor taxes grouped in a category called “other taxes. These results used state savings as a proxy for the tax base value but additional estimations were carried out using the value added of the sector according to the economic census. Here the results are very much as expected. The Lottery Tax is levied by 22 states. ranking comparisons are not valid since states do not necessarily impose the same number of taxes. Among the best tax performances are Aguascalientes.19 Sobarzo states where tourism is an important economic activity.” This category is hard to analyze because. this estimation will be useful for analyzing the overall tax system performance of states. Perhaps the only thing worth mentioning is that they seem to be quite robust since the results do not change if instead of using state savings we use state GDP as a proxy for the tax base. Looking at the best and worst tax performances. among the states showing best tax performance are places characterized by a modern and well developed tourism infrastructure for foreign tourism. and Mexico City. . as explained in the Appendix. Veracruz. and Baja California. Moreover. The Tax on Amusements and Public Spectacles is imposed by 15 states and the results of the estimations of tax potential are shown in Column 9. as having a high concentration of these activities. which is the purpose of the next subsection. To conclude this section on state taxes. and the results remained practically the same. with the exception of Nayarit. it is difficult to establish a clear pattern of behavior. Nuevo Leon. either through associated business as in the case of the Distrito Federal. or in typical leisure resorts. It appears that the tax performance of the states is correlated to a relative degree of economic development. as is the case of Mexico City. These states are all well known for their yearly fairs or national expositions and.

as the difference between the state per-capita tax potential and the national per-capita tax potential. for each state. If tax potential is adjusted by population. Positive numbers indicate state percapita potentials above the national average and negative numbers reflect states which lag behind the per-capita national average. The overall performance of the tax system confirms that the best tax performances occur in rich states whose capitals are medium-size cities whereas the worst performances take place in rich states too.20 Sobarzo 4. The states best positioned are Mexico City. among others. By State The results of the total tax effort and tax potential by state are reported in Table 5. At the opposite extreme. which is not surprising given the importance of these two taxes in terms of revenue. that is. Nuevo Leon. The point is particularly relevant in a country like Mexico. but with large capital cities. This variable is calculated. Table 5 was constructed by adding up all the taxes so that the resulting TPIU is an indicator of total state tax effort. where 1 indicates the best performance and 32. The results bring an additional perspective to the analysis. which suggests that. The results are very similar to the VAT and personal income tax. . Guerrero. Oaxaca.2. characterized by very strong regional heterogeneity in terms of population. and Baja California. Jalisco. apart from efficiency. administrative capacities. and Hidalgo. as was the case in the previous subsection. the resulting rankings change dramatically. The last column of Table 5 presents a ranking of the TPIU. as well as other differences. last place. Tabasco. Table 6 shows what we call the per-capita lag of tax effort. income. when taxes are to be decentralized other elements have to be taken into account. and education levels. among the states lagging behind appear Chiapas. it refers to the tax system as a whole for each state and not to a particular tax. which is an additional variable to evaluate tax potential and is not comparable with our previous estimates.

46 0.96 0.09 0.05 1.01 0.77 1.84 0.45 0.44 0.83 1.86 1.51 0.65 6 12 1 4 21 3 15 24 29 7 19 17 11 32 28 23 14 8 25 30 31 10 9 26 22 13 2 20 18 5 27 16 .02 0.92 2.57 0.39 0.12 0. federal and state.63 0.21 Sobarzo TABLE 5 State Aggregated Tax Potential Summary State Tax Collection* MP (1) 01 Aguascalientes 16242948 02 Baja California 36601355 03 Baja California Sur 14256881 04 Campeche 17355225 05 Coahuila de Zaragoza 19954586 06 Colima 10493888 07 Chiapas 13669683 08 Chihuahua 20333409 09 Distrito Federal 79134902 10 Durango 14099004 11 Guanajuato 28312474 12 Guerrero 14058920 13 Hidalgo 13019691 14 Jalisco 27353153 15 México 50127651 16 Michoacán de Ocampo 14389473 17 Morelos 11412771 18 Nayarit 9481328 19 Nuevo León 32938303 20 Oaxaca 7956692 21 Puebla 15089265 22 Querétaro de Arteaga 21069790 23 Quintana Roo 12288649 24 San Luis Potosí 10263587 25 Sinaloa 13257654 26 Sonora 24492397 27 Tabasco 23498108 28 Tamaulipas 19214059 29 Tlaxcala 6992278 30 Vera Cruz-Llave 67431227 31 Yucatán 6676530 32 Zacatecas 11496073 Total 682961954 *Sum of all tax collections.88 2.74 0.84 0.35 0.92 0. federal and state.35 1.49 0. **Sum of tax potential of all taxes.62 1.56 0.29 0.43 1. ***Tax Potential Index Use.09 0. Tax Potential** (MP) (2) 12002960 39874351 5558379 9058225 32075532 5346878 16244599 41502674 183733289 12557187 38241503 17019372 12872181 93321589 114040847 25741253 13330958 8712846 69517371 20660580 42602612 20122207 11321996 22367357 23143817 27890931 11649079 30287335 9043770 44616319 14858677 13715897 1043032573 TPIU *** (3=1/2) Ranking (4) 1.47 0.56 1.

5 8. **Calculated as the difference between the Per-Capita Tax Potential of each state and the National Average Tax Potential.0 10.6 -6.4 14. Tabulados de la muestra censal.2 12.6 5.0 10.22 Sobarzo TABLE 6 Per-Capita Lag of Tax Potential Adjusted by Population State 01 Aguascalientes 02 Baja California 03 Baja California Sur 04 Campeche 05 Coahuila de Zaragoza 06 Colima 07 Chiapas 08 Chihuahua 09 Distrito Federal 10 Durango 11 Guanajuato 12 Guerrero 13 Hidalgo 14 Jalisco 15 México 16 Michoacán de Ocampo 17 Morelos 18 Nayarit 19 Nuevo León 20 Oaxaca 21 Puebla 22 Querétaro de Arteaga 23 Quintana Roo 24 San Luis Potosí 25 Sinaloa 26 Sonora 27 Tabasco 28 Tamaulipas 29 Tlaxcala 30 Vera Cruz-Llave 31 Yucatán 32 Zacatecas Average Global Tax Potential (1) Population* 2000 (2) 12002960 39874351 5558379 9058225 32075532 5346878 16244599 41502674 183733289 12557187 38241503 17019372 12872181 93321589 114040847 25741253 13330958 8712846 69517371 20660580 42602612 20122207 11321996 22367357 23143817 27890931 11649079 30287335 9043770 44616319 14858677 13715897 940778 2476010 418962 687572 2287816 536650 3912081 3037366 8550170 1440899 4648460 3063380 2226763 6293460 13058570 3959772 1545775 910241 3812758 3419524 5054788 1398148 870918 2290332 2522862 2192455 1883620 2735624 957705 6883273 1650949 1347186 Per Capita Tax Potential (3=1/2) 12.8 2.4 Source: XII Censo General de Población y Vivienda 2000.6 -0.5 8.0 -4.1 10.4 -0.2 5. .5 2.2 -1.1 13.5 -1.8 14.6 -2.2 13.6 9.7 6.4 -5.2 11.8 16.7 8.1 9.6 18.2 14.8 8.6 Lag** (4) 2.4 6.5 9.4 13.6 3.4 3.9 -2.4 0.2 5.0 -1.1 -4.9 -1.8 9.8 -1.2 10.4 2.7 2.0 7.2 -4.1 -1.7 21.0 8.7 6.2 3.0 9.8 4.4 -0.9 -4.2 6.1 -2.6 -4.0 4. Cuestionario ampliado.3 13.

at least in the cases of federal taxes.001 0. while in the case of state taxes.23 Sobarzo So far the analysis has concentrated on state tax potential either for a particular tax or the tax system as a whole. For a correct interpretation.126 -0. one can conclude that states displayed a better tax performance vis a vis the federal government. all the federal taxes perform below the average. This consideration is important because.65 Net Proportional Impact (4)* 0. which may be below the average (negative sign) or above the average (positive).84 1.161 -0.62 0. with the exception of ISAN.83 1. the results show in fact the federal government tax performance across the territory.21 0. *Net Impact = [(1)-(2)]/Sum of (2) Tax Tax Potential (2) 2648626 152346 491816 321150 10120229 7850230 231355514 168331063 176987722 3865176 440908701 1043032573 TPIU**** (3=1/2) 1.001 -0.07 0.027 0.000 0.09 0.10 1.43 0. The relative structure is interesting because.02 0. rather than analyzing state tax performance. only two are slightly below the national tax potential (Amusements and Lotteries).001 -0.81 1.345 .000 0.000 0. Interpreting the results in this manner.000 0. Another interesting way to look at results is to decompose the contribution to the national tax performance of each particular tax across the territory.035 -0. TABLE 7 Net Impact of Each Tax on the Total National Tax Effort Tax Collection (1) Others 2833427 Amusements 122808 Hotel Occupancy 501013 Lotteries 266752 Payroll 11100759 Car Ownership 8583587 IEPS 99977185 Personal Income Tax 132286304 Corporate Tax 149173918 New Cars 4659703 VAT 273456498 Total 682961954 ****Tax Potential Index Use.79 0. positive or negative numbers in column 4 represent the net contribution of a particular tax to the cum performance tax effort. Table 7 shows the net impact of taxes on the total national tax effort.

despite the changes that have taken place over the last few years in Mexico. to a lesser degree. CONCLUSIONS This paper presents the results of an RTS constructed for Mexico that analyzes state tax effort and. Nuevo Leon. on the revenue side state governments depend heavily on transfers from the central government. such as large informal sectors. The results suggest that large cities concentrate not only economic activity but also the typical problems of large cities. Regional statistics in Mexico are not abundant. The difference. The RTS provides valuable information for designing a tax decentralization strategy. Hopefully. Veracruz. which is one of the relatively poorest states in Mexico. The worst tax performances occur in states characterized by large capital cities. state tax potential. Jalisco. However. as is the case of Aguascalientes. the RTS presented here will be followed by other ambitious efforts to obtain not only more reliable but more robust results. In the meantime. Puebla and. This is because the federal government levies the taxes with the widest fiscal basis. etc. over the last several years regional data have gradually improved both in quantity and in quality. State governments impose several taxes but on a very reduced basis. or simply a change in the formula for distributing unconditional transfers to states. Colima. the distribution of tax responsibilities between federal and state government levels in Mexico is heavily concentrated at the federal government in terms of revenue. RTSs are very often constructed for other countries and the methodology is certainly not new. . tax elusion. Thus. Baja California Sur. both the best and the worst tax performances occur in relatively rich states. Estado de Mexico. more important. The results presented here are proof of that. the analysis of the results of the RTS reveals the following pattern: with some exceptions. as is the case of Mexico City. and other illegal activities. the analysis of the results presented here leads to some initial conclusions. is that the best positioned states are those whose capital cities are of medium size. First. The exception in this last group seems to be Oaxaca. however. Fortunately. RTSs are normally heavy regional-data-demanding systems and it is perhaps this last point that explains why the RTS presented here is the first effort of this nature in Mexico. Second. tax evasion.24 Sobarzo 5.

relative state tax performance is in principle determined by the number of taxes they impose. the quantitative results presented here are a valuable input for redesigning a scheme of intergovernmental fiscal relations.25 Sobarzo Third. levied relatively few taxes. if the analysis is modified and adjusted by population it shows that state tax efforts are conditioned by their heterogeneity. a comparison of state and federal taxes shows that state taxes are close to the national average. However. some states showed relatively good tax performance and. states may be competing for investment. such as regional socio-economic disparities and unequal administrative capacities. so as not to weaken social policy. Finally. Fourth. The point is relevant in a country like Mexico. whereas the performance of federal taxes is significantly below the national average. In particular. it seems that while efficiency is a relevant criterion. Future reforms could transfer more taxation responsibilities to state governments or they could simply change the formula for the distribution of unconditional transfers (participaciones). Fifth. it could also suggest that the federal government is responsible for the more complex taxes. at the same time. to mention a few. This result suggests that states are doing a “better” job of taxation than the federal government does in the states’ territory. even though this is by far the most important state tax in terms of revenue. However. characterized by accentuated regional disparities. This could suggest the existence of healthy tax competition. but this hypothesis needs empirical support. it is certainly not the only criteria to be considered. A few states did not levy payroll tax. In any case. it will be important to keep in mind that the regional heterogeneity of the country will surely demand a strong federal government and therefore impose limits on how far a tax decentralization attempt can go. . However. Additional elements have to be taken into account when designing a strategy for tax decentralization.

a more careful consideration suggests that ultimately the VAT is paid by final consumers. and Beverages (3130). Therefore. To approximate this concept we first calculated state savings and then state consumption was obtained by deducting savings from incomes at the state level. alcohol. We . Value Added Tax While one could argue that a natural candidate here would be state GDP. by state. a more appropriate definition of tax base here is the amount of income devoted to consumption. The advantage of using this indicator instead of simple state GDP data is that extra information on income distribution was incorporated. as reported in the 1999 economic census (Censo Económico. and tobacco (IEPS) Here the best indicator of the tax base value was the value added of the sectors Gasoline (6260). Tax on gasoline. INEGI 1999). Corporate Tax The tax base value for this tax was a simple measure of state GDP in 2000. Clearly. This questionnaire disaggregates households according to incomes levels expressed as multiples of a minimum salary as in the law. This was achieved using the aggregate 2000 GDP as income and allocating it by state according to the amplified questionnaire of the National Population Census (INEGI 2001). Tobacco (3140). Car ownership (Tenencia Federal) For this particular tax we again used the amplified questionnaire of the population census where households are classified according to whether or not they have a car.26 Sobarzo Appendix Tax Base Values Personal Income Tax To estimate the tax base value it was necessary to allocate income by state. this exercise assumed that state GDP equaled state disposable income.

as explained with the VAT tax above.Sobarzo 27 then assumed an average value of 50. according to the economic census. Hotel occupancy Estimated value of rooms available in the year 2000. New cars (ISAN) We used the same base value as with the personal income tax. Lotteries The same as the previous (state savings).000 pesos a car. The assumption here is that the purchases of new cars are highly correlated with income levels. according to information from yearly statistics by state (Anuario Estadístico por Entidad Federativa. It is important to mention that the federal government used to operate a national census of vehicle registrations but stopped in the eighties. Amusements and public spectacles We used a proxy state savings. The assumption was simply that this kind of consumption is highly associated with leisure. Payroll Tax We used value of remunerations by state. Others State GDP . INEGI (1999). INEGI 2003b).

Aguascalientes: INEGI. 2003a. 2003b. No. Aguascalientes: INEGI. like education. 1998.” Canadian Tax Journal Vol. Gordon. ENIGH – 2000. pp. 1962). 1990. Indicadores Regionales. No. a very common (and legal) practice is the use of US secondhand cars.” Quarterly Journal of Economics Vol. the reports of the United States Advisory Commission on Intergovernmental Fiscal Relations (1990. 4 For the United States see for. Anuario Estadístico por Entidad Federativa. Messmacher. “¿Es disciplinado el mercado crediticio estatal mexicano? Una arista para el nuevo federalismo. No. 254. the starting point for allocating resources obeyed an historical inertia. Aguascalientes: INEGI. R. 1993. _____. pp. 1971.28 Sobarzo ENDNOTES 1 In some cases.” Mimeo. and E. 567–586. 1997. Slack. Índices de Desarrollo Humano 2002.” Journal of Public Economics 68. 7 In cities on international borders. 5 For a critical review of RTS. rather than a specifically designed formula. F. and M. LXIV (2). CONAPO (Consejo Nacional de Población). 4. REFERENCES Bird. Hernandez. “Fiscal Federalism and Redistributive Politics. R. Dixit. INEGI. A. instance. particularly on the border with the United States. 3 It is a tax on gasoline. “Desigualdad regional y gasto publico en Mexico. XCVIII. 153–180. pp. Gamboa. . El ingreso y el gasto publico en Mexico (several years). 2002. see Bird and Slack (1990). 1986. 199–219. Mexico: Colección de Índices Sociodemográficos. pp. 38. Aguascalientes: INEGI. 913–927. 2002b. 2002. “Equalization: the representative tax system revisited. “An Optimal Taxation Approach to Fiscal Federalism. _____. 6 For a classification of states according to the degree of economic and social development see CONAPO (2002). 4. tobacco and alcohol. _____. and Hohn Londregan. 2002a.” El Trimestre Económico Vol. R. 2 Perhaps with the exception of the first years of the 1990s (see Hernandez 1997).

. P. DC: ACIR. Censo Económico. Molinar. R. The New Federalism: Can the States be Trusted? Stanford: Hoover Institution Press. and H. Cornelius. Aguascalientes: INEGI. 305–333. and T. Washington. and M. and R. Measuring State Fiscal Capacity: Alternative Methods and their Uses.” Journal of Development Economics Vol. DC: ACIR. United States Advisory Commission on Intergovernmental Fiscal Relations. Oates. Washington. Information Report M-170. (1999). “Competition in Federal Systems: The Role of Political and Financial Constraints. DC: ACIR. Measures of State and Local Fiscal Capacity and Tax Effort. Tomais.” World Bank Policy Research WP 1843. 3–61. “Externalities and Bailouts: Hard and Soft Budget Constraints in Intergovernmental Fiscal Relations. M. “Electoral Determinants and Consequences of National Solidarity. San Diego: Center for US–Mexican Studies. 61. Nechyba. pp. Sobrazo. “Economic Competition Among Jurisdictions: Efficiency Enhancing or Distortion Inducing?” Journal of Public Economics 35. Sempere. ______ 1986. 1998. 2001. 1971. Institutions and Fiscal Performance in a Federal System: an Analysis of the Argentine Provinces. McKinnon. Measuring the Fiscal Capacity and Effort of State and Local Areas. DC: ACIR.” In John Ferejohn and B. 1998. Weingast. Wildasin. . eds. Washington. Information Report M-58. Weldon. Sanguinetti. J.” In W. D. 1994. 2000. Aguascalientes: INEGI. Mexico: El Colegio de Mexico. 1997. Information Report M-16. 333–354. Information Report M-150. pp. 1998. ______. University of California. 1988. Jones. _____. 1962. Transforming State Society Relations in Mexico: The National Solidarity Strategy. “Politics.. W. 1990. Schwab. State Fiscal Capacity and Effort. Federalismo Fiscal en Mexico.Sobarzo 29 _____. J. and J. eds. Washington. Cuestionario Ampliado del Censo General de Poblacíon y Vivienda del Ano 2000. pp. ______.