Mexico | How to spoil a highly competitive market? With a remittance tax

Summary

The proposed 3.5% tax on remittances in the United States would increase the cost of sending 350 dollars from 5 to 17.25 dollars, representing an increase of nearly 250%. This sharp increase could spur the growth of multiple informal and unregulated channels for sending remittances.

Key points

• Key points:
• The market structure of the U.S.-Mexico remittance corridor resembles what economics classes describe as a highly competitive market. The digital revolution, the globalization of the financial system, and, above all, the sheer size of this market –the largest remittance corridor in the world, with more than 12 million Mexican migrants and 28 million second and third generation migrants– generated a virtuous cycle that allowed for economies of scale and attracted numerous competitors.
• For 25 years, Adam Smith's "invisible hand" has worked its magic in the remittance corridor between the United States and Mexico, reducing the cost to around $5, a level that several experts believe will be difficult to reduce further, as it is already close to the operating cost of the service.
• Thus, a tax policy that is primarily intended to affect the undocumented migrant population (or simply intended to raise revenue) could ruin a remittance market that is currently secure, regulated, and highly competitive, with prices already at rock-bottom levels, and where the main beneficiaries are consumers.

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