The paper aims to analyze the fiscal performance of Mexican states. Furthermore, the document seeks to identify factors that explain the variability of fiscal efforts between states. This being said, the authors introduce two methodological approaches to estimate the states’ fiscal efforts: a traditional model which features tax burdens, the Tax Effort Index, and one that assumes a Representative Tax System, the Fiscal Potential Index.
The document is organized into six sections. After a brief introduction, the second chapter presents some stylized facts on the public finances of Mexican states. The third section develops the methodology and the estimation of rates of tax efforts, whilst the fourth section presents the results obtained from the model. Finally, in the fifth and final section delivers some conclusions and policy recommendations.
In conclusion, the authors argue that the evidence suggests that the relative tax burden of the Mexican states is strongly affected by the transfers they receive from the federal government.