Oil rent and fiscal valorization in Mexico (1990–2023): structural evidence using VECM

Abstract

This study analyzes the structural link between the energy sector and public finances in Mexico by employing a vector error correction model (VECM) with robust inference and an incorporated regime shift. The analysis focuses on the joint long- and short-term dynamics between federal government oil-related budget revenues and a set of fundamental energy valorization variables: total crude oil production, oil exports measured in Mexican pesos, and domestic sales of petroleum products. The study is situated within the context of an energy transition characterized by a sustained decline in crude oil production—reaching its sharpest contraction in 2016—an international price collapse—also bottoming out that same year—and a gradual institutional reconfiguration following the 2014 energy reform. These processes converge in 2016 as a critical turning point, justifying the inclusion of a structural break variable from that moment onward. The model identifies a stable cointegration relationship between public revenues and the resource valorization channels—exports and domestic consumption—while production operates as an exogenous variable, with no significant fiscal effect. The results reveal a pattern of fiscal dominance: public revenues adjust to imbalances, but not the energy determinants, reflecting an institutional framework in which fiscal policy responds to oil sector dynamics without structurally influencing them. Taken together, the findings provide an empirical assessment of the fragility of Mexico’s fiscal-energy nexus and underscore the need for countercyclical rules and robust institutional mechanisms in the face of high volatility and structural transformation.