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Public Policy, Poverty and Inequality in Mexico

Public Policy, Poverty and Inequality in Mexico. John Scott, CIDE NAFTA, Migration and Public Spending in Mexico: Are They Good for the Poor? January 30 th 2008 Washington. Main messages.

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Public Policy, Poverty and Inequality in Mexico

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  1. Public Policy, Poverty and Inequality in Mexico John Scott, CIDE NAFTA, Migration and Public Spending in Mexico: Are They Good for the Poor? January 30th 2008 Washington

  2. Main messages • At thecentenary of theMexicanRevolution, and after a decade of NAFTA, the“SecondAgrarianReform” and Progresa-Oportunidades, progress in reducinginequality and povertyisdisappointing(inter-dimensional, inter-generational, mutuallyreinforcing…) • Publicpolicieshavefailedto reduce asset-basedinequalitieseffectively, and in some cases haveactuallycontributedtoincreasethese (tertiaryeducation, public sector pensions, agricultural subsidies) • Forthepoortoparticipate in thebenefitsfromNAFTA, and forequitablegrowthtofollowmarketliberalization more generally, requireseffective and well-targetedpublicinvestment in private and publicassetsconstrainingthepoor’sparticipation, as well as resoplvingmarket-failures.

  3. Four lost decades for the extreme poor…

  4. IMR by municipality (2005): 3-79

  5. Coverage of social security among the rural old (65+) Fuente: Rofman (2005)

  6. The provision of social services is now the principal function of the state… Building health and social security system, education “Populism”, Adjustment “Neoliberalism”

  7. …but the state is small (fiscally constrained) and (non-education) social spending minimal by OECD standards (% GDP).

  8. Who benefits from public spending?

  9. Highest agricultural bias of public spending…

  10. With the exception of PROCAMPO, agricultural subsidies increase asset-based rural income inequality…

  11. PROGRESSIVE (PRO POOR) REGRESSIVE (PRO RICH) Oportunidades Salud SSA Edu Preescolar Edu Primaria Procampo Edu Secundaria TOTAL Salud Primaria Salud Embarazo/Parto Media Superior Salud IMSS Subsidio Eléctrico Salud Hospital Salud PEMEX Pensionados IMSS Pensiones Activos IMSS IVA GASTO FISCAL Salud ISSSTE Edu Superior Pensiones Activos ISSSTE Pensionados ISSSTE -0.800 -0.600 -0.400 -0.200 0.000 0.200 0.400 0.600 0.800

  12. The redistributive potential of public spending 10% poorest Primaria 2 SSA 3 Oportunidades Secundaria 4 Preescolar IMSS Salud 5 Procampo Deciles Media-Superior 6 Subsidio Eléctrico IMSS Pensiones Jubilados 7 PEMEX Salud 8 IMSS Pensiones Activos ISSSTE Salud 9 Superior ISSSTE Pensiones Jubilados 10% richest 0% 20% 40% 60% 80% 100% 120% 140% 160% Public spending as a % of private HH spending

  13. Democracy and Reforms… • Rural Spending and Food Subsidies • Markets: NAFTA (1994-2008), Ejido (1992)… • Subsidies: from CONASUPO to PROCAMPO (1994) and PROGRESA/Oportunidades (1997) • From urban to rural bias in education and health • Education • Carrera Magisterial… • Pensions • IMSS Reform (1997), Oportunidades Pension… • Health System • Decentralization (1993), PAC, Seguro Popular (2004)

  14. Democracy and Reforms… • Prpgress in Transparency and Accountability • Education: from TIMSS (1995) to PISA (2003), INEE, ENLACE (2007) • Health: health system statistics, IMSS financial reports • Fiscal and Budgetary Policy: • From Kaldor’s secret mission…to Fox’s overexposed IVA reform… • Mandatory tax and benefit incidence analysis with the presentation of the Budget to Congress (2001) • Targeted programs: mandatory operating rules and annual evaluations to Congress (1999) • Reports by International Organizations: WB Public Expenditure Review (2004), OECD… • Official Poverty Measure, CONEVAL

  15. Reform Opportunities • Equity in access to higher education • Finance reform: scholarships • Equity in access to social security • Health: from “Seguro Popular” to an integrated, Universal Health System • Pensions: • From contributive to general tax financing • Basic universal pension

  16. Reform Opportunities • Quality of education and health services • Transparency & accountability: linking the flow of resoures with results… • Demand vs. supply subsidies: empowering clients, not providers • Fiscal reform: following effective spending reforms, not viceversa

  17. Reform Opportunities • Equitable and effective decentralization: distribution of resources to states as a function of necessities & results • Anti-poverty programs and productive subsidies • Effective coordination • Productive social programs & social (equitable) productive programs • Eliminate remaining generalized consumer subsidies: electricity, IVA exentions.

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