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Texas Legislators Face Delicate Fiscal Balancing Act to Prevent Stifling Economic Growth, Says Dallas Fed

For immediate release: September 8, 2014

Mexico’s New Banking Reforms Help Small Businesses But Don’t Adequately Address Structural Weakness of Informal Economy, Says New Issue of Southwest Economy

DALLASWhen Texas legislators convene in January to craft a new state budget, they’ll have to perform a fiscal balancing act to prevent stifling economic growth, according to the latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy.

In a comprehensive analysis, economist Jason Saving says that low taxes and relatively limited regulations have helped propel Texas economic growth—yet delicate funding decisions lie ahead, especially for health and education spending, which accounted for 75 percent of the state budget in 2013.

“The challenge that state lawmakers will increasingly confront is how to address mounting health and education needs, possibly requiring additional revenue, without sacrificing the tax and regulatory attributes that have helped the state’s economy consistently grow faster than the nation’s,” he writes in “Budget Balancing Act: Health and Education Stretch Texas Resources.”

On the revenue side, the coming years could see multiple challenges to the state’s main revenue source, the sales tax. Internet commerce and ongoing issues over sales tax collections could hurt Texas’ sales tax revenues, and Texas’ relatively high sales tax rate might divert commerce to other states, Saving notes.

In “Mexico’s New Banking Measures Aim to Increase Credit, Transparency,” economist Ed Skelton says that Mexico’s recent overhaul of banking laws could address the banking system’s greatest weakness: the availability of credit for small- and medium-sized business.

The financial system changes have “the potential to increase the productivity of small- and medium-sized businesses and help workers borrow against their future income, improving social mobility and income distribution,” Skelton writes.

While only 18 percent of the smallest formal businesses in Mexico have financing through a loan or line of credit, domestic lending to the private sector is expected to grow in the coming years as a result of the financial law changes, Skelton notes.

Though the overhaul should help encourage economic development, it does not directly address the high level of informality in Mexico’s economy, which is the biggest structural weakness impeding Mexico’s economic performance, according to Skelton.

This edition of Southwest Economy also includes an “On the Record” conversation with La Salle County Judge Joel Rodriguez, who discusses how the Eagle Ford Shale oil boom has drastically changed life in the county, which has seen a near doubling in population since 2010. Audio clips from the conversation are available on the Dallas Fed’s website.

This issue’s “Spotlight” examines how cities including Dallas, Houston and San Antonio are working to transform once-vibrant shopping malls that have fallen on hard times back into sources of economy activity.

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Media contact:
Alexander Johnson
Federal Reserve Bank of Dallas
Phone: 214-922-5288
Email: alexander.johnson@dal.frb.org