An Analysis of Optimal Tax Revenue Sharing for Mexico

Abstract

We develop an analysis that identifies the characteristics of an optimal system of shared tax collection and intergovernmental transfers. Mathematical optimization is used to find the level of taxes and intergovernmental transfers. Formulas for the optimal level of taxes and transfers to subnational governments are characterized. We suggest reforms to intergovernmental transfers to include the costs of tax inefficiency, some tax equalization transfer rules, and the marginal social benefits of local public spending. Future research could include local public spending with regional externalities, migration, and consider a dynamic model. This article proposes an original theoretical model of optimal tax coordination and transfers. The optimal level of taxes and transfers are identified. This paper proposes reforms to the participation formula for subnational governments.

Tax Culture in the Tax Evasion of Micro-Enterprises During the Post-COVID-19 Period, in Southern Peru

“…Furthermore, Figure 4 illustrates that 72% of micro-entrepreneurs lack awareness of tax evasion, while 28% acknowledge the issue's existence but do not prioritize it in their commercial endeavors. The study brings to light a concerning lack of tax awareness among microentrepreneurs in Tacna, indicating a low level of knowledge about tax obligations (Rodríguez, 2020).…”

“…In this region, resolving significant weaknesses in tax administration remains a crucial obstacle in enhancing revenue collection. As a result, these developing nations only capture 40% of potential tax revenues, with a significant hindrance being the high level of tax non-compliance (Gómez & Morán, 2016;Rodríguez, 2020).…”