Understanding the Welfare State and Economic Policy
The Welfare State and Economic Policy
The welfare state is a political economy where the economy is driven by guiding principles implemented by the state. The state is exclusive and can intervene with individuals.
Classification of Economic Policy
Economic policies can be classified into several categories:
Agricultural Policy
Agricultural policy is found in the primary sector, implying agriculture, forestry, and related activities, as classified under Article 27 of the Mexican Constitution.
Industrial Policy
Industrial policy focuses on economic units transforming matter into satisfactory goods. Industry falls into two categories:
- The processing industry: Includes companies like soft drink manufacturers and automotive companies. Capital can be private, foreign, or Mexican.
- The mining industry: Handles key activities related to mining and oil, primarily managed with public capital.
Monetary Policy
Monetary policy, as per Article 28 of the Mexican Constitution, is managed by a central bank (in Mexico, Banco de México). It has the power to issue paper money with financial backing, restrict its release, fix the exchange rate, set the bank rate (TAR), and establish positions and lines for the commercial banking system and development.
Independence from the government is crucial. The governor of the Bank of Mexico is appointed independently. Commercial banks, including private and foreign banks, also play a role.
Development Bank
The development bank comprises public banks whose function is to seek and promote national economic activities.
Financial Policy
Financial policy is based on Keynesian economics and has been a cornerstone of the Mexican economy for the last fifty years. It refers to areas of finance that influence economic activities:
- Inland Revenue: The state collects revenue for public expenditure, as per Article 34, fraction IV of the Constitution, which obligates Mexicans to contribute to public spending based on fairness and proportionality.
- Bank Slope
- Stock Slope
The Federal Tax Code provides for the classification of taxes:
- Taxes
- Contributions of improvements
- Social security contributions
- Rights and royalties
- Products
As per Articles 2 and 4 of the Federal Tax Code:
Taxes
Compulsory contributions are set by the state for individuals or corporations legally in a given situation. People and entities are subject to obligations, divided into individual and legal persons (a set of natural and legal persons, including the state or free municipality).
Classification of Taxes
Taxes are classified into direct and indirect taxes. Direct taxes are levied on an individual’s wealth (assets and income tax), while indirect taxes are levied on articles by concept trading, such as the value-added tax (VAT).
Classification of Improvements
- Contributions of improvements are provided by the taxpayer to receive a public service, such as street lighting.
- Social security contributions: tripartite contributions involving the state, employer, and employee.
Concept of Rights
Rights are the benefits against existing services provided by the state solely to individuals.
The Uses
This refers to the income received by the state when it acts as a private law body. For example, when the state holds a sale or lease, it is stripped of its power to rule.
Products
These are the contributions that the state receives by contracting with individuals, based on the operation of a service call and the contract award.