Textbook populism fueled Mexico’s debt and now it’s near breaking point

by Macario Schettino.

Editor’s note: Mr. Schettino is an eminent Mexican economist and retired professor at Monterrey Tech’s School of Government.

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As the United States debates the One Big Beautiful Bill Act (OBBB), there may also be public discussion around that country’s fiscal sustainability. The US isn’t the only country struggling with the size of its debt — it's actually a very common issue among industrialized nations. But the issue is particularly important for Mexico.

Mexico has long been one of the countries with the lowest tax collection rates in the world, measured as a share of GDP. Prior to the 2013 tax reform, tax revenues were below 10% of GDP, supplemented by oil revenues and income from state-owned enterprises and agencies, bringing the total to about 18% of GDP. That was all the government had to fund its expenses — hence the poor coverage and quality of public services.

Although Mexico joined the global trend toward a welfare state starting in the 1960s, it never enacted a fiscal reform capable of funding its growing obligations. While many attempts were made, only one succeeded — in 1980, with the creation of a value-added tax. The next major reform came in 2013, raising tax revenue from 8% to 14% of GDP. With that, the government’s total revenues reached 22% of GDP.

Those revenues, along with a moderate deficit, allowed for spending close to 24% of GDP — still insufficient to fully meet the government's responsibilities at a reasonable level. However, under former President López Obrador’s administration, public spending increased significantly without a corresponding increase in revenues. As a result…