OECD – World Bank Seminar
Democratic Governance in Mexico:
A Latin American Perspective
Comments by
Javier Santiso
Chief Economist and Deputy Director
OECD Development Centre
 Paris, 20th June 2007
Overview
1
Is Mexico different?
2
Fiscal policy and legitimacy in Latin America
3
Conclusions and policy lessons
2
Democratic Governance
in Mexico
• A very Hirshmanian exercise in “trespassing”.
• A welcome focus on legislative processes and the
implementation of reforms
“In a nutshell, many of the distortions observed in
Mexico’s policy sectors result from the role of special
interests in capturing the policy-making apparatus.”
(page 1)
• Mexico suffers from “interest group” politics, but so do
many other Latin American countries.
3
Is Mexico different?
Institutional anchoring: A key driver of possibilism
Efficiency Index
Public Regardness Index
Chile
Chile
Mexico
Uruguay
El Salvador
Peru
Uruguay
Mexico
Colombia
El Salvador
Brazil
Brazil
Peru
Venezuela
Honduras
Colombia
Bolivia
Bolivia
Ecuador
Argentina
Argentina
Honduras
Venezuela
Ecuador
1
2
3
4
1
2
3
Source: Mariano Tomassi. “The Institutional Foundations of Public Policy”. Journal of the Latin American Economic Association. Spring 2006.
Note: Based on expert and enterprise surveys
4
4
Is Mexico different?
Institutional anchoring: A key driver of possibilism
Coordination and Coherence
Enforcement and Implementation
Chile
Chile
Uruguay
Brazil
Mexico
Mexico
El Salvador
El Salvador
Bolivia
Colombia
Uruguay
Brazil
Honduras
Peru
Colombia
Honduras
Peru
Bolivia
Ecuador
Venezuela
Argentina
Ecuador
Venezuela
Argentina
1
2
3
4
1
2
3
Source: Mariano Tomassi. “The Institutional Foundations of Public Policy”. Journal of the Latin American Economic Association. Spring 2006.
Note: Based on experts and enterprise surveys
4
5
Is Mexico different?
Institutional anchoring: A key driver of possibilism
Adaptability Index
Stability Index
Chile
Chile
Colombia
Uruguay
Brazil
Brazil
El Salvador
Mexico
Uruguay
Colombia
Mexico
El Salvador
Bolivia
Honduras
Honduras
Peru
Argentina
Bolivia
Peru
Ecuador
Ecuador
Argentina
Venezuela
Venezuela
1
2
3
4
1
2
3
Source: Mariano Tomassi. “The Institutional Foundations of Public Policy”. Journal of the Latin American Economic Association. Spring 2006.
Note: Based on experts and enterprise surveys
4
6
The difference is in fiscal
policy, revenue generation
Tax revenue in Latin America
36
Brazil
Sweden
26
Argentina
19
Chile
LATAM
Avge
17
Mexico
12
Venezuela
12
0
10
20
43
38
Czech Rep.
20
Colombia
50
France
25
Uruguay
Tax revenue in OECD
OECD Avge
36
Spain
35
Portugal
34
30
Ireland
% of GDP
30
40
50
26 % of GDP
United States
0
10 20 30 40 50
Source: OECD Latin American Economic Outlook (forthcoming) based on ECLAC and OECD Revenue statistics databases (2007)
Note: data are for (2004) and include social security contributions
7
Overview
1
Is Mexico different?
2
Fiscal policy and legitimacy in Latin America
3
Conclusions and policy lessons
8
Latin America suffers from low
fiscal legitimacy
- Fiscal legitimacy is the
confidence people place in fiscal
policy
- Citizens’ satisfaction with the
government’s job
% of respondents who trust
tax revenue is well spent
27
Chile
26
Honduras
El Salvador
23
19
Nicaragua
Venezuela
18
18
Brazil
Argentina
17
15
Costa Rica
Uruguay
- Latin American countries, and
Mexico in particular, suffer from
low fiscal legitimacy
- Fiscal legitimacy matters for
democratic governance and fiscal
performance
14
Parguay
Panama
14
12
Bolivia
Colombia
11
10
Guatemala
Peru
9
Mexico
9
7
Ecuador
Source: OECD Latin American Economic Outlook (forthcoming) based on Latinobarómetro (2003)
Note: index based is based on citizens survey
14
0
5
10
15
20
25
30
9
Fiscal legitimacy enhances
democratic governance
50
Costa Rica
45
(% satisfied with democracy)
Democratic legitimacy
Uruguay
40
Venezuela
Honduras
Nicaragua
35
Argentina
El Salvador
Chile
30
Brazil
Bolivia
Panama
Colombia
Guatemala
25
Ecuador
20
Mexico
15
Peru
10
Paraguay
r = 0.5
5
0
0
5
10
15
20
25
Fiscal legitimacy (% who trust taxes are well spent)
Source: OECD Latin American Economic Outlook (forthcoming) based on Latinobarómetro (2003)
30
10
Press freedom boosts fiscal
accountability
Sweden
50
France
Italy
Spain
Brazil
(2004 % GDP)
Tax Revenue
40
Turkey
30
Slovak Rep.
Argentina
Ireland
Uruguay
Switzerland
United States
Korea
Colombia
20
Nicaragua
Costa Rica
Chile
Ecuador BoliviaPeru
Venezuela
10
Mexico
Haiti
0
0
10
20
30
40
50
60
70
80
90
100
Freedom of the press
(Index: 0-30=Not free, 31-60=Partially free, 60-100 Free)
Source: OECD Latin American Economic Outlook (forthcoming) based on Freedom House (2007) and ECLAC and OECD Revenue Statistics
(2007)
11
A political transition but not in
the media…
Free
Partially
free
Not
free
Freedom of the press
100
Venezuela
90
80
LatAm avge
70
60
Chile
Mexico
50
40
30
20
10
1988 Chile’s plebiscite
0
1980
1985
1990
1995
2000
Chile
LatAm avge
Mexico
Venezuela
2005
2006
12
Source: OECD Latin American Economic Outlook (forthcoming) based on Freedom House (2007)
Why is fiscal legitimacy low in
Latin America?
Unlike Europe, in Latin America taxes and transfers play no
redistributive role
Inequality before taxes and transfers
Inequality after taxes and transfers
60
20
40
0
0
LatAm
average
35
34
31
20
10
Brazil
31
46
30
10
Mexico
47
42
Europe
average
30
50
Ireland
40
53
Spain
50 52
France
46 47
49 51
54 56
Gini coefficient
50
Chile
Gini coefficient
60
13
Source: OECD Development Centre based on data by Goñi, López, and Servén (2006)
Why is fiscal legitimacy low in
Latin America?
Poor quality of fiscal policy: Low quality public spending
Education Expenditures and Performance
600
Slovak Republic
Poland
500
(PISA 2003)
Mathematics Score
550
Norway
United States
Spain
450
Thailand
Uruguay
400
Mexico
Indonesia
Tunisia
Brazil
350
300
-
5,000
10,000
15,000
20,000
25,000
30,000
Annual expenditure on educational institutions per student (2001)
in equivalent US dollars converted using PPPs, by level of education, based on full-time equivalents
14
Source: OECD Latin American Economic Outlook (forthcoming) based on PISA (2003) and OECD Education at a Glance (2005)
Overview
1
Is Mexico different?
2
Fiscal policy and legitimacy in Latin America
3
Conclusions and policy lessons
15
How can Latin America improve
on fiscal legitimacy?
1.
Implementation is key
–
–
–
2.
Enhance checks and balances
–
–
–
3.
Less is more?
Brazil and Mexico: It is not only a question of quantity
1990s reform focused on technical issues but failed to get
implemented because it became entangled in politics
More and more effective
More attention to media and think-tanks (Ulysses and the Sirens)
Peer review mechanism around LEO and Tax Centre
Corporate governance: The case of Pemex
–
The OECD corporate governance roundtable
16
Thank you!
Presentation based on:
The forthcoming
“OECD Latin American Economic Outlook”
http://www.oecd.org/dev/leo
17