Spain and Mexico share experiences in fiscal policies to reduce inequality

Can inequality be reduced through fiscal policies? The director of the Institute of Fiscal Studies (IEF) of the Ministry of Finance and Public Function, Alain Cuenca, said yesterday at the Meeting with the European Union: State Tax Model in the Mexican state of Guanajuato: “reducing inequality is possible, and taxation is one of the most powerful tools to achieve it”. In fact, Spain achieved this at the end of the 20th century through an expansion of its social welfare system and an increase in public revenues from 25 to 40% of GDP between 1975 and 1985, which led to a very considerable reduction in the Gini index between 1973 and 1990.

Since 2005, the IEF has been working with the EUROsociAL+ program, financed by the European Union and managed by the FIIAPP, whose main objective is to improve social cohesion in Latin America through experience exchange projects. There, the Director of the IEF shared with Finance Secretaries from ten Mexican states the European perspective on the potential of the tax system to contribute to the reduction of inequality.

Data on GDP spending show that public spending in the EU is close to 50%, while in Mexico 20% less is spent. In 2019, in the LAC region, most of the total collection comes from taxes on goods and services, with VAT being particularly relevant, accounting for 27.74% of the collection, while what is collected from personal income tax, corporate income tax and property taxes, account for 9.18%, 17.86% and 3.83%, respectively.

However, after the economic upturn in 2021, the LAC region faces a complex outlook for 2022 and 2023. In fact, it will be necessary to mobilize domestic resources to maintain a sustainable trajectory of public spending, which is why spaces such as the one held in Guanajuato are essential to exchange experiences and learn how the EU and other countries in the region are acting in the aftermath of the pandemic.

At the opening ceremony, the Ambassador of the European Union, Gautier Mignot, explained that Team Europe in Mexico has identified the reduction of inequalities as a priority for the coming years. To this end, they intend to work with the Public Finance Secretaries of the federal entities to design fiscal policies that improve public services and guarantee the protection of the most vulnerable sectors.