To achieve higher growth and reducepoverty and inequality, Mexico needs to improve publicservice delivery. Mexico is a middle-income country withcontinuing high levels of poverty (46.2 percent of thepopulation). To improve public sector service delivery,Mexico needs to ensure sufficient financial and humanresources relative to the needs of the population, andeffective and efficient public management of spendingprograms to address those needs-two basic prerequisites foran effective public sector. Mexico's public servicedelivery is hindered by low tax collection and expenditureinefficiencies at all three levels of government: federal,state, and municipal. Mexico's tax collection is alsolow by Latin American standards. The problem of low taxcollection is particularly acute at the local level, as manysubnational governments lack incentives and administrativecapacity. At the local level, improving tax collection facesadditional challenges. Low subnational tax collectionincreases the volatility of subnational finances withinMexico's fiscal federalism framework. Subnationalgovernments need incentives and assistance to improve theirtax administration to increase own revenues. As part of anambitious strategy to modernize public sector financialmanagement, the government has started to harmonize thepublic accounts and accounting practices of the federal andsubnational governments.
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