Mexico | Economic recovery by reducing the income tax rate for low-income taxpayers

Summary

Despite the reduced fiscal space, we consider it desirable to boost private consumption and, by the same token, aggregate demand by reducing the target for the 2019 primary balance to 0.5% of GDP.

Key points

• Key points:
• We suggest that this be implemented through a reduction in the income tax rate in such a way that it benefits taxpayers at low-income levels, which have a higher marginal propensity to consume
• To avoid that such fiscal stimulus brings about a permanent reduction in the tax revenue derived from income taxes, we suggest public policies aimed at lowering the informal sector’s size and thus make it possible to have a significantly broader base of taxpayers in the years to come

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