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Will South Bay Region Benefit from Mexican Sales Tax Hike?

Economists say increased retail spending north of the border by Mexican shoppers won't last.

People in line to enter the United States from Mexico at the San Ysidro Port of Entry. Photo credit: John Moore/Getty Images.
People in line to enter the United States from Mexico at the San Ysidro Port of Entry. Photo credit: John Moore/Getty Images.
In a move that is anticipated to bring in $1.15 billion a year, the Mexican government ended its two-tier tax structure and raised the federal sales tax in border regions to 16 percent—the rate the rest of the country pays. The increase took effect New Year's Day.

Opponents say the hike, which raised the sales tax from 11 percent, will harm the economy by driving shoppers across the border.

"We don't compete against the rest of Mexico, we compete against the American economy," Juan Manuel Hernandez, president of the Tijuana Business Coordinating Council, said in a news report by Elliot Spagat of the Associated Press.

University of Texas at El Paso economist Thomas Fullerton says the result will be a 5 percent to 10 percent increase in spending north of the border by Mexican shoppers in 2014. He estimates that will taper off in coming years as Mexicans adjust to the new tax rate, and U.S. businesses will benefit less.

While the increase may mean better business in the short term here at home, there are concerns the move is a strike against a struggling local economy.

"We need to remember that we’re one region," Cindy Gompper-Graves, CEO of the South County Economic Development Council, said in an NBC San Diego news report. "So, when the sales tax increases in Tijuana, it can have negative ramifications for companies on the U.S. side that are purchasing goods, services and supplies on the south side of the border."

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