Building Bond Repayment Capacity in Developing Countries: A Study on Property Tax Collections and Debt Affordability in Mexico

This article uses a multinomial regression model to analyze the bond repayment capacity of issuers of municipal bonds in Mexico. The study emphasizes the role that property and land-based taxes have in the enhancement of repayment capacity, as these are highly underutilized levies with important revenue raising potential. The findings show that there is no statistically significant link between these taxes and the chosen proxy for repayment capacity. This follows from an institutional and legal framework that creates an artificial environment of fiscal solvency. The Mexican case is instructive on how not to create a subnational bond market.