The Unassuming Economist

An IMF country report analyzes the “income inequalities and government transfers using microdata from Mexico’s survey on household income and expenditures (ENIGH). It highlights the positive role played by government transfers in reducing inequalities over 2004-2016 and suggests that there is scope for better targeting existing social programs.”

“Transfers and taxes play a much more limited role in alleviating inequalities in Mexico than in other OECD countries. The Gini reduction effect of transfers and taxes is lower in Mexico than in all OECD countries. This limited redistributive role of fiscal policies in Mexico may result from a tax system that is insufficiently progressive. It also reflects the low level of public social spending as a share of GDP, in particular on non-contributory cash transfers targeted at the poorest households.”

“After a modest increase over 2007-2015, public social spending as a share of GDP has
fallen in the last two years. Public social spending increased by 2.5 percent of GDP from 2007 to
2015, reaching a maximum of 12.1 percent of GDP, before shrinking to 10.4 percent in 2017. Social
assistance and education, the first two components of public social spending, absorb together more
than 60 percent of the total, while health expenditures amount to close to a fourth.”

“Mexico’s social assistance programs cover well households at the bottom of the income distribution. 31 percent of the households in the bottom income quintile benefit from Mexico’s conditional cash transfer program Prospera (formerly known as Oportunidades and initially launched as Progresa), which has served as a model for many countries around the world (Parker and Todd, 2017). Similarly, the share of households benefiting from old-age social assistance is three times higher in the first income quintile than in the fifth one. Prospera and old-age social assistance programs account for about ¾ of the decline in the Gini coefficient coming from government transfers, while they represent about half of the total government transfer amount received by an average household.”