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Enhanced autonomy of sub-national governments has spurred innovative management. Spending assignments across levels of government, however, often overlap and/or are not yet fully understood by most citizens. Sub-national governments’ accountability is further reduced by the heavy reliance on federal transfers, as opposed to own-revenues (taxes and user fees). In addition, the use of federal transfers as collateral for states' borrowing potentially undermines the role of financial markets in disciplining fiscal behaviour. Getting the most out of decentralisation would thus require a national agreement clarifying responsibilities for each level of government. Improving sub-national governments’ incentives in delivering cost-effective public services would further require improving the quality of information on actual spending and outcomes, raising the volume of their own taxes and reforming the grant systems. Decentralisation should also be more consistent with the aim of improving interregional equity in obtaining access to core public services. This Working Paper relates to the 2005 OECD Economic Survey of Mexico (www.oecd.org/eco/surveys/mexico).
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The growth of potential GDP in Mexico is not fast enough to narrow the income gap with other OECD countries at a sufficient pace. The persistent weakness in human capital development contributes to this situation. In particular, Mexicans spend comparatively few years in formal education, and the quality of the education they receive is lower than in other OECD countries. This paper discusses the performance of education services up to the upper secondary level. It assesses both the efficiency (outcome for money invested) and the equity of the system and shows that the education system has to be improved further to narrow the human capital gap with other OECD countries at a faster pace and to better prepare children for life and work in a modern economy. The key problem is not a lack of resources but rather inefficiencies and misallocation of spending together with weak incentives for education professionals to perform well. The paper makes specific recommendations to improve the system. The ongoing efforts undertaken by the authorities go in the right direction but are not sufficient. This Paper relates to the 2005 OECD Economic Survey of Mexico (www.oecd.org/eco/surveys/mexico).
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