The Impact of Special Economic Zones on Border Regions in Mexico

ABSTRACT We analyze the effects of a major tax reduction and a doubling of the minimum wage in the Northern region of Mexico, using a synthetic control approach. This quasi‐natural experiment allows us to isolate the impact of a 50% value‐added tax cut, a 30% income tax (Impuesto Sobre la Renta, ISR) reduction, and a significant wage increase on economic growth. At the time, the minimum wage in the zone was approximately 5 USD per day (2023 values). Despite the wage doubling, our findings show notable economic growth, with gross state product increasing over 4% and surpassing 7% post‐pandemic. These results underscore how targeted local fiscal policies can stimulate economic performance, offering valuable lessons for policy design in emerging economies.