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Candidate Number: 54215 Aurelio Nuño Trinity, 2008-05-19 St Antony’s College

Building a National State “without” Taxation: the Political Consequences of the Fiscal Evolution in Mexico after the Armed Revolution, 1920-1930.


Table of Contents

Introduction……………………………………………………………………………… 3


Lack of International Wars and Forging a New Internal Coalition……….. 6

II. The Porfirian Fiscal Structure…………………………………………………….. 13

III. The Obregón Presidency: Limits and Possibilities of Fiscal Extraction …17

IV. The Calles Presidency: Political Coalitions and Low Taxation…………….36


Bibliography……………………………………………………………………………. 50


Introduction After the armed period of the Mexican Revolution (1910-20), there emerged “in the 1920s and ‘30s, a regime that proved more durable than Don Porfirio’s and an economy that, over time, eclipsed both its Porfirian predecessor and its Latin American rivals”.1 In that sense, as Alan Knight argues, the Mexican Revolution displayed “a distinctly Tocquevillean character: from the rubble of revolution was built a state both stronger and more stable than its old regime counterpart”.2 Nevertheless, this stronger and more stable state did not create a solid fiscal system. The revolutionary governments of the 1920s collected, as percentage of GDP, almost the same revenue as the late Porfirian regime did. Moreover, in comparative perspective, Mexico’s low levels of taxation were maintained during the entire twentieth century.

Why did a stronger and more stable state not create an extensive fiscal system? Furthermore, how was it possible to create a stronger state without a solid fiscal system? What was the nature of the fiscal system forged after the armed Revolution? What were the political consequences of this new fiscal arrangement?

My first hypothesis is that the combination of the nature of the internal challenges of state reconstruction with the lack of a serious threat of any international war against powerful states3 demanded a not-very extensive fiscal


Knight, Alan, “The Peculiarities of Mexican History: Mexico Compared to Latin America, 1821 -1992, in Journal of Latin American Studies, Vol. 24, 1992, p. 104. 2 Ibid, p. 104.

Until the end of the 1920s the threat of an US invasion was present. Yet, my contention is that the military superiority of the US was so evident that ironically it was no longer a real military threat.


structure. Furthermore, my second hypothesis, and the central argument of this paper, is that the internal conditions that shaped the process of state reconstruction in Mexico after the Revolution not only failed to create pressure for increased taxation but also created strong incentives to avoid taxation.

The strength of the new regime came from the formation of a broad coalition between the government and different sectors of the Mexican society. My contention is that one of the elements that helped the government to forge this coalition was offering low tax rates and fiscal waivers in exchange for political support. This process of coalition formation shaped a fiscal system full of waivers, privileges, and tolerated evasion that also reinforced a pattern of clientelistic politics.

The present work confines itself to the 1920s, a period where the Mexican state experienced a rapid and radical process of reconstruction that shaped the nature of the new regime. This essay is divided into four parts. In the first part I develop my hypotheses and central arguments. In the second part I describe the main features of the Porfirian fiscal system that was inherited by the revolutionary governments of the 1920s. In the third part, I analyse the possibilities of and the limitations on taxation faced by the government of Álvaro Obregón (1920-24), including the oil boom, the lack of both international and

Furthermore, in terms of territory, the US, during the Mexican-American war (1846-48), had already taken what it wanted from Mexico, thus by the 1920s a potential US invasion, such as the occupation of Veracruz in 1914, did not put at risk the future of the country. A hypothetical invasion would only be a temporary occupation of some ports and oil fields. Furthermore, after Mexico defeated France in 1867, the risk of a European invasion disappeared and the other Mexican neighbors, Belize, Guatemala and Cuba, were not a military threat. In a nutshell, since 1867 Mexico no longer had a security dilemma. For the concept of security dilemma see, Herz, John, Political Realism and Political Idealism: A Study in Theories and Realities, (Chicago: Chicago University Press, 1951).


national loans, the Obregón’s failed attempts to create direct taxes and finally the imposition of the income tax after the delahuertista uprising (1923-24). Finally, in the fourth part, I analyse how the offer of low taxation and fiscal waivers helped to consummate, during the Plutarco Elías Calles presidency (1924-28), the political coalitions that gave the new regime its strength and stability.


Brazil and Argentina were calculated using the Oxford Latin America Economic History Database: http://oxlad. US Department of the Treasury. Excepciones y privilegios. Modernización Tributaria y Centralización en México. Mexico’s low levels of taxation were corrected neither during the 1930s nor indeed during the entire twentieth century. which between 1900 and 1910 had on average collected 5.shtml. History of the US Tax System”: www. This was just a small increase compared to the late Porfiriato. For UK from 1910 to 1970. “Fact sheets: Taxes. on average. in comparative and Argentina 6. 397 (Cuadro A2).ox. Furthermore. 1922-1972. Aboites. Revenue Statistics. from 1970 to OECD. 4 Percentages for Mexico. Oxford Latin America Economic History Database: http://oxlad. For US from 1910 to Excepciones y privilegios. For US percentages see US Department of the Treasury.treasury.I. 6 . Lack of International Wars and Forging a New Internal Coalition The revolutionary governments between 1920 and 1930 from 1950 to 1970. Aboites. Brazil and Argentina. For UK percentages see Aboites. p. and from 1970 to 2000. 397 (Cuadro A2). Brazil 9%. during the 1920s the UK government collected 19% of GDP.85% of Mexico’s GDP. “Fact sheets: Taxes.qeh. (México: El Colegio de México. For instance. 5.35%.5%. p.shtml.4 Figure 1: Central Governments Revenues as percentage of GDP Central Governments Revenues as a percentage of GDP 45 40 35 30 Mexico UK US Brazil Argentina % of GDP 25 20 15 10 5 0 1910 1920 1930 1940 1950 Year 1960 1970 1980 1990 2000 Sources: For Mexico. Revenue Statistics.ox. the US 13%. Excepciones y privilegios. History of the US Tax System”: www. 2003).qeh. By any international comparison this figure was very low. 397 (Cuadro A2). p.

Blood and Debt. (Oxford: Blackwell Publishers.treasury. 2002). was that the former was fought among internal factions. in 1910 the UK only collected around 7% of its GDP. US Department of the Treasury. For instance. Aboites. Tilly. Excepciones y privilegios. 6 From this perspective. and during World War II revenues increased 150%. Coercion. Miguel Ángel.7 A similar process was experienced by the US.8 Clearly the Mexican Revolution did not have the same effect on the fiscal structure. During the First World War.5 In a nutshell. 6 Ibid. and the internal constraints of tax extraction that were determined by the configuration of class structure. History of the US Tax System”: www. wars made states and states made wars. p. AD 990-1992. Capital. War and the Nation-State In Latin America. (Philadelphia: The Pennsylvania State University Press. especially the World Wars. which led to wars.shtml. not all wars have a positive influence on taxation. 8th edition. 9 See. yet after the First World War UK revenues reached 20% of the GDP.Charles Tilly argues that state construction in Western Europe was the result of interaction between the clash of expansionist political groups. 1998). Charles. pp. extraction of resources in preparation for such wars. p. The relationship between war and taxes was very clear during the World Wars.9 The principal difference between the Mexican Revolution and the European wars. and European States. 397 (Cuadro A2). 104. 7 See. 67-95. “Fact sheets: Taxes. and 5 See. 8 See. federal revenues increased 300% in terms of GDP. Before the Second World War UK revenues were somewhat less than 20% of its GDP. but after the war revenues were higher than 35%. the origins and the evolution of the fiscal structures of the Western European states were a consequence of war. As Centeno argues. none of which was constituted by political structures with the organizational abilities that characterize European nation-states. 7 . Centeno. pp.

Therefore. even contradictory. who. it was a weak state that had inherited a poor fiscal system trying to establish its internal authority over uncontrolled generals and local political bosses. mountainous areas. On the contrary. if not allies of the government could be co-opted by military rebels. who also had only limited access to revenues. complicated the possibilities of raising taxes even more. On the other hand. Winning the Mexican Revolution required fewer resources than winning World War I. the revenue needed by the state to defeat internal dissidents. Therefore. precisely the fact that the central government was not yet able to monopolize the means of violence limited its possibilities of extracting revenue. the combination of the internal challenges of state reconstruction with the lack of a serious threat of any international war demanded a not-very extensive fiscal structure. on the one hand. 8 . was less than that needed to defeat a powerful foreign enemy. such as the lack of infrastructure and capital. The new regime was immersed in an environment crowded by uncontrolled generals and well-mobilized popular organizations. the government was very soon forced to forge political coalitions with some of the most powerful factions of different. as well as the extension of the territory. Therefore. for the fear that it might be overthrown by military dissidents. and few navigable rivers.they required less material resources than the wars fought by the latter. Geographical and economic conditions. During the period of state reconstruction in the 1920s the new regime was not a centralized state searching for revenue to fight another powerful state. social and economic groups.

or to tax its allies very little. Land reform cost money. as I attempt to demonstrate in the following pages. The new Constitution of 1917 (especially article 27). capitalists. and therefore to construct a stronger and more stable state than its old regime counterpart. The revolutionary government had seized or could potentially seize some of the land. Also. Adolfo de la Huerta and Plutarco Elías Calles. one of the key components that allowed the new regime to build a broad coalition among peasants. Indeed. opened the door to the distribution of some of the land owned by Porfirian hacendados. The presidential periods of Obregón and Calles (1920-28) is therefore also known as the “Sonoran regime”. Under these circumstances. workers. Another element that helped the new regime to forge a coalition without spending heavily was the fact that both land reform and organized wor kers’ demands could be achieved without exorbitant expenditure. 9 . was the establishment of very low taxes or even the full exemption of tax payments to the regime’s allies. one of the most valuable resources that the government was able to offer or. from another perspective.Yet the central problem was that the new regime had inherited a very weak fiscal structure. and local political bosses. and the material benefits that it could offer to its allies were also very restricted. combined with the Sonorans’10 military victory. especially after a revolution where land had been seized by force. but it was cheaper than other social benefits and rights such as health and education might be. in the case of 10 The clique of revolutionary Generals who overthrew President Carranza in 1920 under the Plan de Agua Prieta were commanded by three Generals from the state of Sonora in North West Mexico: Álvaro Obregón. was forced to offer in exchange for political support was not to tax. especially because it demanded new bureaucratic organizations.

the government had very limited options when it came to raising more money in order to expand the government’s benefits to more people and enlarge its coalition. the coalition was also limited. social. Furthermore. It was for these reasons that there emerged a pattern of selective rather than universal enforcement of property. benefited from irrigation systems paid for by the government. dissenters among the excluded groups threatened the 10 . the principal workers’ organization allied with the govern ment. legal and political rights and other economic benefits delivered by the government. Military victory in itself brought a significant change in power relations. precisely because one of the “glues” of the government’s coalition was low taxation. thus reinforcing a process of political and economic articulation through clientelism. Moreover. also demanded patronage. thus transferring a significant proportion of the cost of social reform to capitalists.organized workers the Constitution (especially article 123) and military triumph gave the government the ability to force entrepreneurs to meet workers demands. some of them revolutionary generals. The Confederación Regional Obrera Mexicana (CROM). For instance. bringing the army under government’s control and buying generals’ loyalty with cash was expensive. because revenues were limited. and a number of big landlords. precisely because the government did not have enough revenues to sustain itself without its clientelistic alliances. Low tax rates and tax waivers did not fully exempt the government from rewarding some of its allies with material benefits. Therefore.

(London: Routledge. and a pattern of repression of d issenters took shape in the 1920s. 11 . 1876-1929. since they argue that one of the mechanisms of selective protection of property rights was preferential tax treatment. these authors. Lewis. 12 See. Janet Hunter and Colin M. They argue that the government selectively enforced the property rights of asset holders who joined the government’s coalition. The New Institutional Economics and Third World Development. The Politics of Property Rights. Haber. From the perspective of the New Institutional Economics (NIE)11. Governments are interested in creating VPI coalitions because they get revenues in exchange for enforcing the property rights of the asset holders who are members of the government coalition. Razo and Maurer12 explain that economic growth during both the armed Mexican Revolution and the unstable period of state reconstruction of the 1920s was possible because of the formation of coalitions such as those described in this essay. 3.government’s survival. 2003). the analysis of Haber. and Economic Growth in Mexico. Haber. Razo and Maurer actually supports my hypothesis that low taxation was conceded in exchange for support. for the case of Mexico in the 11 “The NIE is a development of neo-classical economics to include the role of transaction costs in exchange and so to take account of institutions as critical constrains on economic performance”. Harris. (Cambridge: Cambridge University Press. While I agree with the analysis of how VPI coalitions worked in Mexico during the 1920s. But from my perspective. see. They were therefore able to invest. Credible Commitments. Armando Razo and Noel Maurer. Razo and Maurer call these forms of coalitions Vertical Political Integration (VPI). 1995). p. and some degree of economic growth was achieved. Therefore. Stephen. Haber. those asset holders were secure in the knowledge that their properties and investment would not be affected by the government. Political Instability. John.

a formula that helped the revolutionary regime to build its success.1920s. 12 . it displayed a strategy of achieving political support in exchange of low taxation. but it was even more interested in political support. the Mexican government was interested on getting some revenues from its allies. Obviously. Therefore. overestimate the government’s interest in taxation.

Katz.II. Yet in 1910. at the end of the Porfiriato. Friederich. Internal taxes had become more important than external taxes. The Life and Times of Pancho Villa. at the beginning of the Porfirian regime. while the stamp tax represented 30%. (Stanford: Stanford University Press. but when measured as percentages of total revenue tended to show a decrease. 50 and 129-130. an indirect tax on internal trade and transactions. custom revenues were 66% of federal revenues. tended to show an increase. For the case of Chihuahua see. The Porfirian Fiscal Structure The Porfirian fiscal structure was based on indirect taxes. stamp tax. In 1876. John. p. while stamp tax. Zapata and the Mexican Revolution. This was an important shift in the structure of the Porfirian finances. 1998). the big landowners did not pay this tax fully. However. 13 For the case of hacendados in Morelos see Womack. and taxes on public services and exploitation were 26%. The only direct tax during the Porfiriato was the property tax collected by municipalities. 13 . the stamp tax only represented 11% of central government revenues and taxes on public services and exploitation were 23%. (New York: Vintage Books. especially during the late Porfiriato. pp. 1970).13 Custom revenues were the principal source of central government revenue during the Porfiriato. 42. Fiscal dependency on foreign trade was remarkable. The three most important sources of revenue were custom taxes. custom revenues were 44% of federal revenues. the second most important revenue. and they normally reported lower values for their properties and lobbied to get fiscal reductions and waivers. and taxes on public services and exploitation.

1780-1920.14 stimulated an increase in internal taxes. 14 . pp. (México: Centro Mexicano de Estudios Económicos. 1876-1910 Evolution of the Federal Revenues' Composition. vol.Figure 2: Evolution of the Porfirian Fiscal Structure. Two factors explain the growth of internal taxes. 1780-1920. 15455 (Cuadro V. Enrique. vol I. (Madrid: Editorial Biblioteca Nueva. Enrique. José Ives Limantour. See also. Daniel. Cárdenas. 80-1. 1876-1910 70 60 % of Total Federal Revenues 50 40 Customs Stamp Tax Public Services and Eploitation 30 20 10 0 1876 1880 1885 1890 Year 1895 1900 1905 1910 Sources: Cárdenas. 2003). pp. And Cosío Villegas. Cuando se originó el atraso económico de México. (Madrid: Editorial Biblioteca Nueva. (Lincoln: University of Nebraska Press. La economía mexicana en el largo siglo XIX.3). The Mexican Revolution. the growth of the economy. 70-71 (Cuadro 6). 142-51. Cuando se originó el atraso económico de México. La cuestión arancelaría en México. La economía mexicana en el largo siglo XIX. 1932?). 1990). 2003). and 157. implemented a 14 See. Knight. in 1893 the Minister of Finance. and in particular the expansion of domestic trade related to the rapid growth of railway construction. pp. Second. pp. III. First.

Brazil. on average the federal government raised 5. and property transactions. 15 . between 1900 and 1910. a relatively low figure compared with Brazil and Argentina. 15 See.fiscal reform raising the tariffs of the stamp tax on textiles. 1901-1919 Central Governments Revenues as a percentage of GDP. 1901-1919 16 14 12 10 Mexico Brazil Argentina GDP % 8 6 4 2 0 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 Year Source: Oxford Latin American Economic History Database. Cárdenas.15 During the late Porfiriato. Figure 3: Central Governments Revenues as a percentage of GDP. pp.35% of the Mexican GDP. collected 12.7% of its GDP and likewise Argentina raised 7. 156-7.3% of its GDP. on average. alcoholic beverages. Cuando se originó el atraso. two countries with a similar degree of development.

7%. it is not unrealistic to think that some other factors might also have influenced the decline in revenues. federal revenues were only 3.5% of its GDP. on average. By 1910. This level was maintained until 1919. Nevertheless. Therefore. when the Mexican Revolution started. and the latter 5. 10% of its GDP. 16 .From the second half of the 1900s Mexican revenues declined as a percentage of GDP. is important to notice that both Brazilian and Argentine revenues also declined during this period. The Revolution might have had some influence on this decrease. Between 1910 and 1920 the former collected.

Zebadúa. Emilio. 17 See. and after the inflationary experiences and destruction of the banking system during the Revolution. His government inherited the fiscal structure developed during the Porfirian regime. however. This meant that the Mexican federal government continued to depend on indirect taxes. Hacia el Nuevo Estado. Medina Peña. and there was no federal direct tax. Payment of the external debt had been suspended since 1914 and international loans had therefore been also cancelled. pp. 1914-1929 (México: Fondo de Cultura Económica and ColMex. 1994). President Venustiano Carranza (191720) ordered the confiscation of the assets of the Mexican banks. There were. the national banks had no capital to borrow. the government did not even have enough instruments 16 See.III. (México: Fondo de Cultura Económica. 85-87. The Obregón Presidency: Limits and Possibilities of Fiscal Extraction On 1 December 1920. These two phenomena were new. Obregón not only inherited the Porfirian fiscal structure but also the monetary chaos created by the Revolution16 and the lack of both international and national credit. p. forcing them to finance his government. yet when Obregón took power the capital seized by Carranza had gone. 2000). two key structural differences between the Porfirian and “Sonoran” financial systems.17 Consequently. México. Álvaro Obregón was sworn in as president. The Porfirian regime had access to international credit and there was not a fragmented monetary sovereignty as there was during the armed Revolution. after the brief interim presidency of Adolfo de la Huerta. 1920-1994. Luis. Banqueros y revolucionarios: la soberanía financiera de México. 166. the government knew that a strategy of printing money without the proper support of gold reserves would only worsen the economy. 17 . Furthermore.

By contrast. The growth of oil production and exports had a very positive impact on federal revenues.of monetary policy to implement fully the inflationary policy of printing money.18 There was no central bank.5% as a percentage of GDP. Maurer. and tax revenues raised by the Mexican government in 1920 were 5% of its GDP. 19 See. Yet Obregón was very lucky because the production and exporting of oil boomed in 1919. pp. collected more than 20% of GDP and the Brazilian central government extracted more than 9%. 18 . 1876-1932. and from 1919 to 1920. Under these circumstances. for instance. the only possible source of revenue was the Mexican economy itself. Mexican fiscal capacity was more similar to Argentina’s. (Stanford: Stanford University Press. 2005). which was 5. However.4% of GDP. Cárdenas. and the monetary chaos of the Revolution reduced people’s confidence in government money. See. government revenues were still very limited. Nevertheless. Gold and later silver coins were Mexico’s primary circulating medium. Between 1919 and 1920 oil production achieved an unprecedented increase: the value of crude oil grew 97%. 2002).19 In a nutshell. neither printing money nor loans nor budget deficits were an option. pp. 62-9. the Argentine government had not been obliged to face a mobilised country after ten years of Revolution. Noel. federal revenues increased by 31. The Mexican Financial System. La hacienda pública y la política económica. 161-70. The Power and the Money. Enrique. 18 According to Enrique Cárdenas the Mexican government did not develop effective instrument of monetary policy until the great depression of 1929. in the same year the UK government. (México: Fondo de Cultura Económica y ColMex. 1929-1958.

000 men absorbed almost 50 per cent of the budget and. more than half the army rebelled.amounting to 3 million pesos for the year.Figure 4: Central Governments Revenues as a percentage of GDP. 1991). following Adolfo de la Huerta’s uprising. more than 300 million pesos in overdue interest. The foreign debt was around 1. although temporarily supporting Obregón. 19 . 200. Leslie (ed). (Cambridge: Cambridge University Press. 20 See. was not wholly loyal to the president. as was demonstrated three years later when. or French recognition. Womack. and the federal government had a surplus in revenue – from oil revenues . British.20 The Mexican army of some 100. p.000 million pesos. in Bethell. 1917-1930 Central Governments Revenues as a percentage of GDP 12 10 8 6 Mexico Brazil Argentina GDP % 4 2 0 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 Year Source: Oxford Latin American Economic History Database. When Obregón took power his government did not have US. John. “The Mexican Revolution”. Mexico since Independence.

21 Although oil revenues were helpful the challenges were huge. a still largely landless peasantry demanding land. the government had to bring the military under its control. It was for this reason that he started to attend to everything at once. but a sine qua non for recovering credit was both the government’s ability to pay external debts and the restitution of the national banks’ assets. 21 See. On the one hand.The government also had to deal with a national confederation of labour at odds with the railway union. “The Mexican Revolution”. On the other hand. and large foreign companies wanting to remain above Mexican law by running their enterprises as enclaves of their own nations within Mexican territory. Womack. 20 . distributing land and attending to workers’ demands. p. generals. and attend to the demands of organized workers. entrepreneurs or landowners. otherwise his government risked being overthrown by an alliance of dissidents. The Sonorans needed urgently therefore to re-establish both international and national credit. workers. the Confederación Regional Obrera Mexicana (CROM). 200. especially to those of its new ally. peasants. the government needed more fresh cash to meet these obligations. distribute land among mobilised peasants. powerful local political bosses scattered all over the country. Obregón could not wait for further resources to start the process of controlling the army. He had to do all of these at the same time. national confederations of merchants and manufacturers.

Mexico’s Way Out. In the same year. 1937). p. Labor. In December 1920. vague and incomplete. 21 . Obregón commenced his agrarian reform immediately. 1995). (Chapel Hill: The University of North Carolina Press. 23 See. Kevin.23 In contrast to the relatively cheap implementation of land and labour reforms. the State and Authoritarianism in Mexico. 75. as was argued previously. both land reform and the most basic workers’ demands could be met without spending too much money. Middlebrook. Obregón had forged a durable alliance with the CROM. but it demonstrated Obregón’s desire to accelerate agrarian reform and forge a political coalition with the agraristas. in exchange for privileged political resources and support for the CROM against the capitalists. (Baltimore: The Johns Hopkings University Press. p. The Ejido.Fortunately for Obregón. which was a key ally of both Obregón and Calles in their fights against governors within Congress. reforming the internal structure of the army. In a secret pact. As Simpson argues. he signed the Ley de Ejidos. Consequently. The strategy followed by the Sonorans of demobilising the military took four forms: helping high-ranking officers to become entrepreneurs. All these actions demanded resources. and buying the generals’ loyalty with cash. the CROM founded the Mexican Labour Party (PLM). creating agrarian and workers’ militias in order to counterbalance the generals’ military power. Simpson. bringing generals under government’s control was more expensive. The Paradox of Revolution. this law was confused. This law was the first attempt to regulate some of the principles laid down in Article 27 of the Constitution. 81. 22 A year before. less than a month after he took office. A huge share of the budget 22 See. Eyler. the CROM promised to mobilise support for Obregón in the 1920 presidential election.

to impose revenue-maximizing import and export tariffs. the military expenditure was 45% of the federal budget. pp. María del Carmen. James. Empresarios y políticos. pp. Aboites. and/or to extract a higher share of oil revenues. 26 See. and he needed to search for more revenue. The stamp tax was problematic. Obregón had three options: to increase indirect taxes.25 and it was therefore not an option.26 From the 24 See. During the Obregón’s presidency. 102 (Table 5-2). in an attempt both to diminish the hyperinflationary prices caused by the monetary chaos of the Revolution. Both the government and the entrepreneurs were against this tax. 1996). Wilkie. For the presidential period of Calles it declined to 31%. p. 202 and 204. Empresarios y politicos. and Collado. 22 . 1967). to create direct taxes.was expended on the military. (México: INEHRM. p. It had many different tariffs and its collection and administration were expensive. and Collado. 140-41. Imports tariffs were lowered during the Carranza government. He did indeed try all of them. and to bring in food and other products that were in short supply in some regions of the country owing to the armed Revolution. Haber and et al. on average. The stamp tax also represented to some extent the unpopular side of the Porfiriato. The Mexican Revolution: Federal Expenditure and Social Change since 1910. 66-67. or to achieve agreements with international and national financiers in order to re-establish credit. (Berkley: University of California Press. In order to increase indirect taxes the government had three options: to augment the stamp tax. pp. 182. 25 See.24 To sum up. Excepcione y privilegios. The Politics of Property Rights. at the beginning of Obregón’s government budgetary pressures were relatively high.

Production and exports can easily be monitored by governments. the physical collection of taxes is also straightforward. the government was able to increase its revenues from imports by a small margin.beginnings of his government Obregón was pressed by industrialists to increase imports tariffs in order to recover the protectionist policy that they had enjoyed during the Porfiriato. so Obregón did not yet feel under any obligation to satisfy the industrialists’ demands. 142. pp. Negotiations over the extraction of resources are confined to a small group of protagonists.28 Indeed. Ibid.29 Extracting more revenue from oil was very tempting. 140. Moreover. the oil industry has fixed assets. Protective import tariffs are not designed to generate tax revenue. meaning that when oil production is high. p. import tariffs increased by only 10%. and high levels of investment are required before profits start to be received.27 At the beginning of the Obregón presidency the coalition between the government and the industrialists was at an incipient stage. Ibid. In short. import tariffs increased. 29 See. But while as the alliance between the government and the industrialists was taking shape. The Politics of Property Rights. because the effect of those tariffs is to drive imports down to zero or at least to very low levels. and it is difficult to hide profits. as oil production and its producers are geographically concentrated rather than dispersed. Fiscal extraction from the oil industry is relatively easy. and government revenues from imports decreased. 27 28 See. p. Furthermore. 23 . the oil industry cannot emigrate in order to avoid highly taxation. Haber and et al. 151-54. As a result.

Nonetheless. at that moment. and achieving diplomatic relations with the 30 See. Because of this. To complicate the picture even more. extracting oil taxes. US diplomatic recognition was also conditional on a resumption of debt payments. 191-92. reaching an agreement with Mexico’s creditors. Obregón did not hesitate to augment oil revenue. Ibid. the situation was more complicated than that because the government had little power over the oil companies. as extracting more of the latter was one of the fastest ways of obtaining huge quantities of fresh cash.30 In a context where some powerful generals were waiting for an opportunity to seize power. Any attempt to take over the industry would have caused a temporary but significant disruption in output of oil and therefore in tax collection. and the government did not yet have the ability to run the oil industry by itself. US diplomatic recognition of Obregón’s government was conditional on respect for the oil producers’ assets. pp. the majority of which were from the US and were backed by the US government. They therefore had the ability to act collectively and with the support of a very powerful government. Oil production was dominated by a few foreign companies. Furthermore. Therefore. the government could not afford the luxury of disrupting oil production. both the re-establishment of the national banks’ assets and the repayment of the external debt depended on the government’s ability to extract oil revenues. What was more.taxing it is very good business. 24 . the re-establishment of the government’s credit was connected with oil revenues.

50 pesos per cubic meter of petroleum. After their confrontation with Obregón the companies reached an agreement: the Mexican government secured an increase in oil revenues.000. On 7June 1921. Foreign oil companies opposed this legislation. Obregón imposed a new oil export tax: a specific duty of from 1. Ibid. but the companies obtained a 60% reduction in Obregón’s new export tax. sought the protection of the US government in order to retain their property. Ibid. 25 . 208. However.US were all part of the same complex problem: how to extract more revenue without affecting the oil companies’ privileges.32 31 32 See.55 to 2. Within this context oil producers fiercely resisted any attempt at taxation. and employment in the oil fields fell from 50. including all the minerals that formed part of that subsoil.000 men to 20. enabling the former to extract a greater share of revenue from the latter. assessed in addition to Carranza’s export tax. pp. Yet the threat of its enforcement gave leverage to government power over the oil companies. and blocked the enforcement of article 27 quite effectively. p. 208-9. the increment in revenue was not achieved without confrontation. Exports went from 15 million barrels per month to less than 6 million.31 The oil companies responded by curtailing output and stopping all investment. Yet Obregón had an important tool with which to put pressure on oil companies. Article 27 of the 1917 Constitution granted the “nation” (in practice the federal government) ownership of all the subsoil of the Mexican territory.

and Haber. and Economic Growth in Mexico. 199 (Table 6. (Cambridge: Cambridge University Press. “Revolution and Reconstruction in the 1920s”. p. Figure 5: Oil Revenues and Oil Production Oil Revenues as a Percentage of Total Revenues and Oil Production in Millions of Barrels 35 250 30 200 25 Millions of Barrels % Total Revenue 150 20 Oil Revenues (% of Total Revenues) Oil Production (Millions of Barrels) 15 100 10 50 5 0 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 Year 0 Sources: Oxford Latin American Economic History Database. Credible Commitments.Despite all the difficulties and the clear limitations on the government’s power over the oil companies. extraction of oil revenues was the favourite and most efficient revenue-producing strategy between 1920 and 1924.1). The significant increase of oil production after 1919 was used to increase on both federal tax revenues and the percentage of oil revenues in the federal income. In fact. 2003). in Bethell. Mexico since Independence. 26 . Stephen. p. 1998). Jean. The Politics of Property Rights. (Cambridge: Cambridge University Press. the fiscal strategy of the government was shaped by the availability of oil revenues. 1876-1929. Political Instability. Leslie. Armando Razo and Noel Maurer. 224 (Table 3). Meyer.

33 Nevertheless. The payment of the Mexican debt was directly tied to oil revenues: in fact part of the debt was directly paid by oil companies. Banqueros y revolucionarios. the government was forced to search out other sources of revenue. what was known as the de la Huerta-Lamont agreement with international bankers did not include any loan. Obregón did not enjoy any significant loan. arguing that Mexico had first to show its payment capacity. Mexican banks had very limited credit capacity. revenues were not bountiful enough to create the much-needed central bank. 27 .Oil revenues allowed the Mexican government to restore assets to the national banks in 1921 and to reach an agreement with Mexico’s international creditors in 1922. As Tilly argues. So despite fiscal efforts to restore access to credit. the possibilities of obtaining significant internal loans continued to be extremely limited. although internal credit was restored after the payment of the internal debt. Negotiations were exclusively concerned with arranging a formula for the payment of the external debt. The straight extraction of people’s wealth is not the same as indirect extraction of trade. Zebadúa. and his government was highly dependent on oil revenues. and with a weak national financial system. taxing people’s own profits. Therefore. Although the Mexican government asked for a new loan. 182-222. pp. and such payments were discounted from their taxes. international creditors refused it. Furthermore. Without a central bank. To impose direct taxation is a huge challenge. properties or income requires a much more 33 See. When oil production declined.

Malcolm. would have 34 35 Tilly. 36 See. 202. 37 In the Mexico of the 1920s. 96-126. rather than relatively few groups of exporters or entrepreneurs as is the case with international trade tariffs or specific taxes of mineral or other industrial production.35 Direct tax extraction. Charles. 1928. Deas. 28 . 16-20. (Cambridge: Cambridge University Press. governments normally prefer to avoid direct taxes. p. Charles. any attempt to extract people’s direct resources beyond the urban centres where capital was normally concentrated. 37 See. when capital is abundant. and 132-43. Vol. as Tilly argues. 287. Moreover. if they have alternatives. Capital. (New York: Cornell University Press. In France. and European States. at least in the long run. and European States. November. 2007). “Where Do Rights Come From?. Tilly. probably one of the “easiest” direct taxes to collect (because by definition assets are fixed and it is relatively easy to assign them a value) requires long and arduous administrative efforts in order to make a cadastral survey. Charles. Coercion. capital was not abundant. These negotiations can sometimes drive governments to concede rights and official representation to the people they are extracting resources from. 61-63. pp. “The Fiscal Problems of Nineteenth-Century Colombia”. even property tax. for instance. 1998). p. in Skocpol. 34 For instance.14. and Tilly. 87-89. pp. Capital. which itself gives rise to a larger collection surveillance apparatus than the sale of precious minerals. See. Tilly. can force governments to negotiate with large numbers of people. pp. Democracy.extensive surveillance apparatus for collection than does the collection of revenue from goods passing across borders. Coercion. part 2. it took thirty eight years to complete such a survey. Therefore.36 It is not accidental that. Democracy. Revolutions and History. taxation is relatively easier and less violent than when capital is scarce. Journal of Latin American Studies. Theda.

29 . Obregón tried to open up all possible alternatives in order to expand Mexican revenues. which shaped the pattern of direct taxation during the 1920s. and expectations of growth in oil revenues were very high. 40 See. Yet. Under these circumstances it made sense not to defend the Centenario tax. Knight. 164-66. 121 and 155. Banqueros y revolucionarios. in 1921. and could have caused unnecessary local rebellions. p. this tax was strongly opposed. Obregón’s first attempt to establish a direct tax was the imposition of the Centenario tax.39 According to Zebadúa. Industrialists and merchant organizations criticized it fiercely. combined with the availability of oil revenues and the political context. because it levied profits and personal income.40 In any case. Zebadúa. This tax was a kind of income tax. Although the aim was to invest in port infrastructure and buy merchant ships. Collado. 160. As noted before. See. 39 See. 38 One of the multiple reasons for rebellion during the Revolution in central north Mexico was the state penetration and taxation of relatively autonomous towns in the region of Sierra Madre. at that moment oil revenues were 23% of the federal budget. The Mexican Revolution vol I.implied that even stronger state mobilization and coercion were needed. this tax was derogated almost immediately after the budget for 1921 was presented to Congress. and their first reaction was to announce that they would not pay the tax. because of the protest against the Centenario tax. From 1920 to 1921 oil revenues grew by 17%. very soon. pp. Empresarios y políticos. pp. the government explained that the Centenario tax was only a provisional measure. political reality and his pragmatism delimited the options. Yet. and would be levied just once. from the start.38 It was these complications.

Aboites. having growing by 35%. It represented a growth of 20% in only two years. established a federal tax on property. 1997. The same argument was used against income tax. according to their interpretation of the Constitution. The most active opposition came from the National Agrarian Chambers and governors. Excepciones y privilegios. 24-25. On 30 May 1923 the decree regulations were published and protests intensified. 116. the federation should be forbidden to impose direct taxes. See. Empresarios y políticos. Su desempeño legislativo 1934-1946”. 1 (abril-junio). in 1922 oil revenues were 31% of federal income. “El crecimiento de los poderes metaconstitucionales de C árdenas y Ávila Camacho. and at that moment the federal government did not feel under huge pressure to collect more revenue. and that the real purpose of the tax was to create a reliable cadastral census. The government agreed to convoke a national cadastral convention to discuss and negotiate the issue. based on the extraordinary faculties that Congress gave to the president on fiscal affairs in 191741. p. argued that that the tax was illegal because. p. Diálogo y Debate de Cultura Política. though industrialists and merchants also expressed their disagreement. particularly the governors. 42 See Collado. The convention was scheduled by the beginning of December. Weldon. Jeffrey.43 The federal government argued that the tariff was very low (1% of properties’ value).The second attempt to impose a direct tax also failed. pp. 43 The governors argued that following the logic of articles 117 and 118 of the Constitution that forbade states to impose indirect taxes. And although oil production started to decline in 1923. property taxes were only under state jurisdiction. 41 Between 1917 and 1946 Mexican presidents used those faculties to enact 92% of the fiscal disposition. On 11 October 1922 a presidential decree. See. 42 The opposition. this trend was not at all clear during the first semester of 1923. That year federal revenues reached 6% of Mexico’s GDP. After all. 30 . 115.

On 21 February 1924 a decree was immediately published imposing the new income tax. the federal government had to repay its allies. 31 . Oil revenues dropped to the level of 1921 and the future did not seem very rosy. On 7 December 1923 Adolfo de la Huerta rebelled. it was now clear that oil production was rapidly declining. the Mexican government would probably have been overthrown by the rebels if it had not had the support of the agrarian and workers’ militias. More importantly. industrialists and merchants. In 1923 oil revenues were only 22% of federal revenue. Second. creating a deficit that put at risk the government’s ability to pay the foreign debt. Obregón derogated the federal property tax.It was very bad timing. and oil companies were given privileges. The context was very different. The government needed the support of governors. agrarian reform had to be accelerated. By February 1924 the delahuertista rebellion had been crushed. and agreements with the US – the Bucareli agreements . landlords. agraristas. with the support of more than half of the army. 29% less than in 1922. This third attempt to impose a direct tax was finally successful.that allowed it to purchase weapons there. the delahuertista uprising involved the government in extraordinary expense. the CROM’s patronage had to be augmented. Therefore. Therefore. It also had the support of the US government and the oil companies during the rebellion. First. Loyal generals had to be rewarded.

probably following their experience of forging a coalition with the CROM and government to raise import tariffs. There was now no alternative: the income tax could no longer be postponed. Yet the delahuertista rebellion also brought a positive outcome for the government. newspapers were flooded with articles and declarations by merchants and industrial leaders against the tax. opposition intensified. The combination of the urgent need for revenue with military triumph gave the government the necessary confidence to impose an extremely unpopular tax on both companies’ profits and personal income. merchants asked for its abolition. The editorial stances of the newspapers were also against the income tax. only asked for reductions and waivers. whereas industrialists. as the latter was strengthened by its military victory. after it was clear that the government was firm in its position. so although income tax was the most opposed and fiercely combated tax during the 1920s. The most fierce and well-organized resistance came from merchants and to a lesser extent from industrialists.These measures required more revenue. Studies undertaken by specialists were paid for and published by merchants’ and industrialists’ chambers. Nevertheless. National and local congresses of merchants and industrialists chambers were held. and their documents and statements opposing the tax were published. Later. National and local chambers of merchants and industrialists joined forces to present a united front against the income tax. this time the government did not capitulate. The national and regional chambers of 32 . The opposition petitioned Obregón for the abrogation of the tax or at least reductions and waivers. Finally.

merchants openly called on the population to deny the payment. 1993). excludes the category of taxes on natural resources but includes the category of taxes on rights and 44 For a more complete narrative of the imposition of the income tax. Los presupuestos mexicanos. 33 . the impact was not that important. especially if compared with the impact of oil revenues. Nevertheless. Iturriaga de la Fuente. 131-153. especially if the Oxford Latin American Economic History Data are considered. BR. 46 Aguilar. desde los tiempos de la Colonia hasta nuestros días. pp. legal petitions were made against the tax in court. Calculating the impact of other taxes is also problematic. from 1925 to 1930. echoing the American Revolution cry of “no taxation without representation”. see Collado. all of them using the data gathered by Aguilar46. (some in fact did so). There is no unified criterion for the origin of taxes. pp. Thus. 45 Mitchell. The government did not capitulate. and Aboites. some merchants threatened to close their businesses. Aboites and Collado. p. 1940). Empresarios y políticos. (Basingstoke: Macmillan Publishers. In any case. income tax was 12% of federal revenues. the tax was only 6% of federal revenues. according to Iturriaga de la Fuente. Calculating the real impact of the income tax on Mexican revenues is complicated. International Historical Statistics. 47 See. Excepciones y privilegios. For instance. 174-199. the amount is significant.47 On the contrary. and even calls for rebellion were heard. Aboites. 1750-1988. 37 (Cuador 2). for example. according to the Oxford Latin American Economic History Data. (México: SHCP. The Americas. Gustavo. Aboites includes the category of taxes on natural resources but excludes the category of taxes on rights and exploitation. based on the data gathered by Mitchell45. on average. Yet.44 Nothing worked. Excepciones y privilegios.

La revolución hacendaria. the last year of Obregón’s presidency. Iturriaga de la Fuente. 34 . (México: SEP. imports. and 1929. I present two types of figures. p. in order to show a general tendency on the evolution of taxation in the 1920s. 65 (Cuadro 5) and 70-71 (Cuadro 6). 48 See. in the few cases that they share categories. La hacienda pública con el presidente Calles. That is why.50 Second. he only clarifies that he added to the whole category of “internal taxes” public services and exploitation taxes.exploitation. (México: Centro Mexicano de Estudios Económicos.48 It is not surprising. the end of the period studied in this essay. drawing from Cosío Villegas data49. I display a graph on the evolution of external and internal taxes. Daniel. using Iturriaga de la Fuente’s figures. First. then. 49 Cosío Villegas. In the case of internal taxes. their figures are dissimilar. I work a table comparing the composition of federal revenues in 1924. to find that although all the authors and data consulted for this essay present almost the same figures for total federal revenues. such as foreign trade revenues. vol. 1932?). La cuestión arancelaría en México. pp. José. exports and consular rights taxes. 77. 50 Cosío Villegas includes in the category of external taxes. Even more. 1976). III. they show different results when total taxes are divided by categories.

1976).Figure 6: External and Internal Taxes as a percentage of Total Revenues.84 5.85 6 19. (México: SEP. vol.7 . La cuestión arancelaría en México.93 .36 100 Source: Iturriaga de la Fuente.98 14. 1924 and 1929 Type of Tax Foreign Trade Industry Income Capitals Stamp Public Services Consular Rights The additional 10% Others rights. 77. products and exploitation Total Percentage of Total Revenues. p. III. Table 1: Structure of Federal Revenues.15 19. 35 . 1924 31. La revolución hacendaria. 1929 26.06 5. 19201929 External and Internal Taxes as a percentage of Total Revenues 80 70 60 % Total Revenues 50 40 External Taxes Internal Taxes 30 20 10 0 1920 1921 1922 1923 1924 Year 1925 1926 1927 1928 1929 Source: Cosío Villegas. La hacienda pública con el presidente Calles.44 9 100 Percentage of Total Revenues.28 28.21 13 5. José. (México: Centro Mexicano de Estudios Económicos. 65 (Cuadro 5) and 70-71 (Cuadro 6).96 6. 1932?).74 1. Daniel.48 5. pp.

The Calles Presidency: Political Coalitions and Low Taxation President Plutarco Elías Calles had to face a rapid decline in oil revenues.IV. caused the decline in oil production. 1991) p. Revolution and Reconstruction. Leslie (ed). In 1921 Mexico was the second world producer of oil. (Cambridge: Cambridge University Press. In 1924 these were 20% of the federal revenue. there was no possibility of a significant international loan. but oil revenues were now severely reduced. the new minister of finance. In the meantime. 52 See. The extraordinary costs of the delahuertista rebellion were financed by national bank internal loans and taxes paid in advance by oil companies. They had returned to the level they had been before 1918. Mexico since Independence. which was signed on the assumption that the high level of oil revenues would be constant. The main problem was that almost all the wells had been exploited to their maximum capacity. The Politics of Property Rights. It was due to purely ecological reasons. Again. 51 As Haber. 51 See.52 The decline in oil revenues. 223-35. Following this. nor article 27. the only possible source of revenue was the Mexican economy itself. Meyer. nor government taxes. Alberto Pani. in Bethell. pp. combined with the extraordinary expense caused by the delahuertista rebellion. but by 1927 production had fallen 76%. 36 . forced the government to suspend the payment of the external debt. Razo and Maurer argue. had to renegotiate the Delahuerta-Lamont agreement. but by 1928 they were only 6%. neither political instability. Haber and et al. 225.

because it gave credit to revolutionary generals to finance their new industrial and agricultural enterprises. These relatively good fiscal conditions allowed the government to reach a new agreement with Mexico’s creditors. Federalism. 53 54 See. 55 See. combined with an increase in public services and exploitation rights taxes. p. Fiscal Authority. 93. 37 . and in December 1925 new inheritance taxes were created. Aboites. Excepciones y privilegios. (Cambridge: Cambridge University Press. and to resume the payment of the external debt. Furthermore.In 1925 Calles reformed income tax. in 1925 the economy grew by 6%57. so that the amount of revenue in pesos was augmented. The establishment of the central bank was a key step in strengthening Mexican finances. His new decree established seven different tariffs that depended on economic activity and level of income. allowed the government to keep the level of taxation at 6% of Mexico’s GDP. 39-73. many generals switched arms for business. The most significant action here was the first National Fiscal Convention organized by Alberto Pani.56 Despite the decline in oil revenues. Ibid. 57 See. Alberto. pp. and Centralization in Latin America. 146. in this year a slow movement towards fiscal centralization commenced. and it played a key role in bringing the army under government’s control. pp. p. Iturriaga de la Fuente. enough resources could finally be taken out to create a central bank. 2006). Therefore. Ibid. 56 See. See. Also.54 Although the convention was not very successful at achieving a greater level of centralization55 it was useful in bringing about new direct taxes. p. 85. these measures. 291 – 301. Díaz-Cayeros.53 Also. The bank was able to finance small government deficits.

In April 1927 a new law on mining taxes was imposed.59 Furthermore. and with Calles’ support the CROM enforced fee deductions from public employees’ salaries. The unions’ political viability is tied to the boards. On the contrary. Five governorships. are responsible for legally registering labour unions. 38 . Morones’ position permitted the CROM to control the designation of both government and labour representatives in the labour conciliation and arbitration boards. thereby increasing significantly its economic resources. Calles ’ presidency saw an intensification of the process initiated by Obregón whereby coalitions were formed with organized workers. peasants. 60 See.the most significant political tool to regulate labour affairs. The CROM’s political and military support of the fe deral government through its workers’ militias was key to government victory over the rebels. conciliation and arbitration boards were – and still are .58 After this law no new significant taxes were imposed in the 1920s. in order to bind those coalitions. Collective labour agreements have legal standing only after they are deposited with the boards. employer and worker representatives. fiscal privileges and waivers were also deepened. Middlebrook.60 The CROM’s power was also extended to local politics and. workplace conditions and minimum wages. the CROM also controlled the Department of Industrial Enterprise and Military Supply. consisting of government. The Paradox of Revolution. Actually. After the delahuertista rebellion the government’s alliance with the CROM was intensified. p. and even some landlords. p. the Federal Labour Office. which also enforce a variety of specific legal requirements regarding collective labour contracts. including the Federal District. Calles appointed the CROM leader Morones as minister of industry. were controlled by 58 59 See. In return for the CROM’s loyalty. and labour. through the PLM. Iturriaga de la Fuente. La revolución hacendaria. industrialist. and the National Printing Office. 93. big entrepreneurs. 79-80. to Congress. Conciliation and arbitration boards. commerce. Therefore.

including support for direct foreign investment. as we noted before. By 1926. As Middlebrook argues. p. In Febraury 1925. both Article 123 of the Constitution and the precise national character of the CROM allowed the federal government to interfere constantly in local labour affairs. for obvious reasons.62 Furthermore. 61 62 See. 80 See. 78. despite all their differences. Ibid. 39 . Nevertheless. p. the CROM’s national leadership informed its affiliates that they could strike only with the permission of the central committee. Ibid. they shared an interest in protecting industries from foreign competition. Although the CROM and industrialists were. industrialists lobbied to bring back the protectionist policies they had enjoyed during the Porfiriato. were fundamental for Calles ’ development programme.the CROM.61 Control over these significant resources allowed Morones to centralize power within the CROM. organized workers and capitalists pushed the government to raise import tariffs. From the beginning of Obregón’s presidency. for instance. and import tariffs were not significantly increased. Therefore. Yet as we also noted before. labour politics was an arena of constant confrontation between the federal government and governors. Before the CROM had been able to gain influence the President was better able to resist industrialists’ pressure. 11 out of 58 positions in the Senate and 40 out of 272 seats in the Chamber of Deputies were also held by CROM members. protectionist tariffs reduced the government’s revenue. Specific labour legislation came under state jurisdiction. the centralized power of Morones and his strong endorsement of economic reconstruction. at odds in many issues.

63 A similar pattern was seen in other manufacturing industries. acting by decree. and consumers had no representatives. p. Ibid. Commerce. one representative from the Ministry of Agriculture. 152. 1876-1929.Nevertheless. determined the tariff. and Labour controlled by the CROM. in the cotton industry. Political Instability. 149. For instance. and Economic Growth in Mexico. according to Haber. two representatives from the Ministry of Finance. Armando Razo and Noel Maurer. The Politics of Property Rights. had enough power to persuade the government to create new protectionists policies. allied with industrialists. “The industrialist had a mechanism to coordinate and signal their demands. (Cambridge: Cambridge University Press. Credible Commitments. who then. p. leading to import tariffs being significantly increased from 1923-4 onwards. 40 . This commission made recommendations to the president. Stephen. In 1925 Calles established a Tariff Reform Commission. 152. “the revenues from the excise were considerably less than the taxes that the government could have received had it imposed the revenuemaximizing import tariff”. one representative from the Federation of Chambers of Commerce. the delahuertista uprising changed power relations. The commission was made up of two representatives of the Ministry of Industry. The CROM. The Politics of Property Rights. 63 64 Haber and et al. and one representative from the Federation of Industrial Chambers.”64 Table 2: Coefficient of Protection (tariff revenues divided by the value of dutiable goods) Year 1920 1923 1928 Coefficient of Protection 14% 24% 31% Source: Haber. 2003). p.

and the government had even less room to negotiate an increase in taxes. the outcome was low tax rates. the government needed tax revenues more desperately than the companies needed the income. in the case of the mining sector. were also tied to metal prices in New York.Table 3: Average Import Tariff for some Products Year Average Import Tariff for Consumers Goods* 38% 47% Average Import Tariff for Textiles Average Import Tariff for Manufactured Clothing 43% 69% 1924 1930 45% 59% *Without including foodstuffs. Credible Commitments. According to Haber. 282. Therefore. 2003). pp. The Politics of Property Rights. As a result. 236-84. 1876-1929. pp. p. Political Instability. Armando Razo and Noel Maurer. (Cambridge: Cambridge University Press. in order at least to extract some revenue. Ibid. the Mexican government “let the asset holders play a l arge role in writing the mining laws”. Stephen.66 Obviously. according to Haber. companies had the ability effectively to threaten the government to cut back production if they were heavily taxed.65 The situation was even more difficult than in the case of oil revenues because metal prices collapsed after the early 1920s. and Economic Growth in Mexico. as in the case of oil. 41 . Ibid. 152-53. Furthermore. as a consequence of political instability. the Mexican governments of the 1920s did not have the ability to run the mines and smelters by themselves. and those rates. 65 66 See. Source: Haber. Razo and Maurer. in the short run.

3 5. 42 . p. In 1926 1.8 7. 1876-1929.6% of all federal funds were expended on irrigation. ejido land can be converted into private property and sold to third parties.2 7. or civilian farmers allied with generals) were allowed to keep relatively large extensions of land.2 6. For instance. and Coahuila.9 6. 2003). Political Instability.7 7.69 Land distribution followed political 67 68 Ibid.13).68 On the other hand.6 4. 132-34. and the federal government provided them with credit and irrigation programmes. and Economic Growth in Mexico.67 Irrigation work sponsored by the federal government was begun in 1926. 315. (Cambridge: Cambridge University Press. The Mexican Revolution. since the constitutional reforms of 1992.9%. See. The government’s coalition with peasants and some landlords. However. Credible Commitments. On the one hand. but by 1928 the amount achieved was 6.Table 4: Estimated Taxation Rates for Mexican Mining (taxes as a percentage of the gross value of production) Year 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 Federal and State Tax Rate Combined 10. in areas with staple crops. in areas with potential for agricultural exports.3 5. many of them revolutionary generals who had replaced Porfirian landlords followed roughly two paths. Wilkie. Armando Razo and Noel Maurer. pp. much land was distributed among peasants in the forms of ejido lands. p. some landlords (either military men. 283 (Table 7.9 6.7 Source: Haber. and expenditure on irrigation grew in the following years. Aguascalientes. the government constructed four large dams in Durango. Stephen. The Politics of Property Rights. 69 Ejido land is not private property and cannot be bought and sold as if it were. Tamaulipas.

“By 1927 statistics indicated that Morelos had changed more from agrarian programs than any other state… Provisionally at least 80 per cent of the state’s farming families now held field of their own.71 Yet. See. p. The story of the agrarian revolt in Naranja and the Zacapu region of Michoacán analyzed by 70 71 See.576 villages and 307. For instance.607 ejidatarios. Ibid. p. after the de la Huerta uprising. Womack. 3. 96-7. Although the struggle for land was used by both the federal government and caciques to construct clientelar relationships. 374. Zapata. agrarian reform in the 1920s was not only controlled from above but also gained from below. 43 . The acceleration of agrarian reform after the delahuertista rebellion was clear.72 It is important to notice that agrarian reform and therefore the alliance between the government and peasants followed a complicated and messy pattern.2 million hectares of land. 72 See. former Zapatistas in Morelos who were allies of Obregón and afterwards of Calles were among the first groups to receive land. Under Obregón’s government 624 villages and 139.70 In other areas agrarian reform was accelerated during and after the delahuertista uprising in compensation for peasants’ military participation against the rebels. 87. Ibid. during the Calles government.2 million hectares of land were distributed to 1. which altogether amounted to around 75 per cent of the arable land”.320 heads of families received around 1.criteria. This was more than three times as much land and villages as during the previous land distribution. pp. This was more than triple the number of villages and ejidatarios receiving land during Carranza’s regime.

Paul Friederich is an excellent example of this complex dynamic. In 1921 the Agrarian National Commission established numerous fiscal waivers for the ejidos74. but from the early 1920s it was fairly evident that the federal government was trying to create a special fiscal regime for the agrarian sector. p. Luis. Excepciones y privilegios. See. and also by the agrarian law of 1971. involving: local agrarian mobilisation for land reform. the ejidos were charged for the use of water until President Calles exempted them for the payment of this utility in 192675. For instance. 73 74 See. Cinco siglos de legislación agraria 1493-1940.73 The alliance between the federal government and ejidatarios was bolstered by another not very well known but important innovation: the ejidal fiscal waiver. (México: Centro de Estudios Históricos del Agrarismo Mexico-Secretaría de la Reforma Agraria. p. yet during the decade they were able to obtain a fiscal waiver. other federal departments ignored the Agrarian National Commission regulations. (New Jersey: Prentice-Hall. government support for agrarian communities (and in some cases effective land distribution) in exchange for military support during rebellions. Agrarian Revolt in a Mexican Village. Manuel. Paul. At the beginning of land reform this fiscal waiver for the ejidos was not clear. A year later the law of “patrimonio parcelario ejidal” established that the only tax that the ejidos must pay was the local property tax. 75 Aboites Aguilar. 232. It might be true that many ejidatarios in the 1920s did not enjoy the same irrigation benefits that some of the new big land owners enjoyed. and dissent and ensuing repression. Friederich. 44 . 1970). 1981). This special fiscal regime was confirmed by the agrarian codes of 1934 and 1943. Nonetheless. 377. Fabila. active mediation and manipulation by political brokers.

80 Plan Sexenal was the name of the “Government Plan”. 233 and 234. especially the wealthiest. the Under-secretary of Finance. 78 Ibid. the National Revolutionary Party protested that income tax had been transformed into a working class tax because this segment of the population was the only one that was unable to avoid it. Aboites himself recognizes that the evidence is still weak. p. See. many ejidos did not even pay the property tax77. despite all the efforts to impose it. Aboites. although the local property tax could not exceed 5% of the annual value of the ejidal production. and that more archival research is needed to present a better picture of this phenomenon. Nowadays it is called “Plan Nacional de Desarrollo” (National Plan for Development). Excepciones y privilegios. 149. Gómez. 79 Ibid. Furthermore. p. 152.According to Aboites. it would not be odd to find that some 76 77 Property tax was calculated in terms of production rather than property value. Marte R. many ejidos refused to pay it76. 149. p. just after the 1920s. in the case of the income tax. 45 . It was presented at the beginning of the presidential terms. but the federal government was as a rule not very receptive to their complaints. in the plan sexenal80 of 1934.”81 However. according to Aboites there are some indications that this tax was also used as a negotiating tool between the federal government and taxpayers. in 1933. Therefore. Finally. argued that income tax “has been perverted and its performance is very similar to the inconvenient system of the stamp tax” 79.78 For instance. Yet. p. 81 Ibid. Many local governments protested. following the logic of forging political alliances at the cost of taxation that we found with other taxes.

kind of evasion was indeed tolerated in the case of income tax in exchange of political support. 46 .

The new regime did not have to prepare a national army in order to fight an international war.Conclusion One of the paradoxes of the Mexican Revolution is that although it achieved a stronger and more stable state than both the Porfirian and the rest of the Latin American states. A key element when seeking to understand the process that gave birth to this coalition is the combination of the fiscal structure inherited by the new regime with the type of financial demands that it was enduring. The financial demands that the revolutionary governments had to meet came from inside rather than from outside. This broad alliance and the particularities that shaped it created the bases for a durable and stable regime unprecedented in the history of Latin America. gave birth to a new regime that in order to subsist forged a broad coalition with organized workers and peasants. it had to demobilise and bring under its control a heterogeneous revolutionary army commanded by ambitious generals scattered all around the country. the features that gave it its strength and stability were the result of the actions of a weak state trying to survive in a challenging environment. On the contrary. with a fragile state threatened by uncontrolled generals. The new regime inherited from the old regime a poor fiscal system dependent on indirect taxes. The convergence of those social and political movements developed during the armed revolution. local political bosses and some military men. and from the Revolution monetary chaos and the impossibility of accessing international or national credit. the fiscal demands were modest in 47 . Therefore. capitalists.

especially when rebels can be counterbalanced through political alliances rather than through revenues.”82 Defeating local rebellions is cheaper than defeating foreign armies. Blood and Debt. Ironically. the Mexican state. though the formula of ‘low taxes in exchange for political support’ that created a national state “without” taxation was also one of the main weaknesses of the new regime. privileges. and tolerated evasion that also reinforced a pattern of clientelistic politics. This process of coalition formation shaped a fiscal system full of waivers. the growth of the population and the demand for more expensive 82 Centeno. These characteristics of the fiscal system forged during the 1920s prevailed for many decades and even today many of these elements are still present. One of the elements that helped the government to forge a broad coalition (without spending huge quantities of money that it did not have) was offering low tax rates and fiscal waivers in exchange for political support. 48 . p. 21. the weakness of the fiscal structure helped to forge a stronger and more stable state than its previous counterpart.comparison with the fiscal demands generated by “total wars. was put in an extremely difficult position by the lack of revenues. The inheritance of a weak fiscal system and the inability to get quick money through credit created the incentives to forge a broad coalition in order to counterbalance the military. It was precisely the fiscal limitation inherited by the new regime that restricted its ability to offer material benefits in exchange for political support. After some decades.

49 . instead of the relatively cheap demands of agrarian reform and eight hours journey. and education. such as health. and economic benefits.

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