Action is also required to reduce a growing divide between the modern productive economy in the north and centre of the country and the traditional more indigenous south where poverty persists.
Improving the quality of Mexican institutions would have the largest impact on growth of any structural reform and would enhance the impact of all other policy reforms, the organization adds.
“The Mexican economy has performed well in recent years, but is now facing serious headwinds from the external environment and important structural challenges at home,” said OECD Secretary-General Angel Gurría.
“The only response is to continue designing and implementing new reforms to instill confidence, improve the quality of public administration, increase opportunities, reduce inequalities and bring about a stronger and more inclusive society for all Mexicans.”
The latest OECD Economic Survey of Mexico discusses the links between low living standards and stagnant productivity, poor educational outcomes, weak rule of law, obstacles to competition and widespread informality.
The survey projects growth of about 1.6% this year and 2.0% in 2020 in the context of a slowing world economy and persistent trade tensions that risk disrupting exports, private sector investment and global value chains.
The report, presented in Mexico City by Gurría and Mexico’s Finance Minister Carlos Urzúa, discusses the need to address the growing regional divide in Mexico, and how recent reforms, institutional improvements and changes to the tax and transfer system can boost inclusive growth.
It urges Mexico’s government to implement recently created anti-corruption systems and ensure the continued independence of new competition authorities and sectoral regulators.
The OECD says tax reforms are needed to improve collection, limit evasion and ensure financing for infrastructure investment and policies to reduce poverty and inequality.
It proposes making personal income taxes more progressive and broadening the value-added tax base by cutting exemptions and abolishing reduced rates while compensating low-income households with targeted subsidies.
Reforms are also needed to reduce persistently high informality in the Mexican labour force, which constrains productivity growth and the government’s fiscal capacity to provide public benefits and redistribute.
The OECD says better educational outcomes will also help fight persistent inequalities and boost productivity growth.
Education spending should be re-focused on early childhood, pre-primary, primary and secondary education, and more should be done to increase the capacity of schools in poor neighbourhoods.
