ABSTRACT
This chapter examines the distributive effects of financial policies in Mexico. Mexico’s income inequality remains among the highest in the world and progress in addressing distributive issues has been inadequate. Mexico’s public sector deficits have a regressive distributive effect regardless of whether they are financed by credit from the Central Bank or directly from the public. The inflationary pressures that result from financing the deficits through new money creation transfer resources from the private to the public sector. Financing the public deficit through the issuance of treasury bills and forced lending on the part of the banks is also likely to have had a regressive effect on income distribution. The distributive effects of the decrease in public expenditures have probably been quite significant, given the high rate of population growth in Mexico and the inadequate level of public services.
