Stronger public finance policies and administrations to reduce inequalities in Mexico (EU4Equity) Despite the fact that Mexico is the world¿s 15th largest economy, the country is characterised by high inequality levels, with almost half of its population living below the poverty line, and one fourth in extreme poverty. The COVID-19 pandemic added 1.6 million more people to extreme poverty and the sanitary crisis revealed the fragility and fragmentation of the national healthcare sector, the deficiency of protection schemes and the general systemic weaknesses of a country suffering from persistent inequality.&nbsp;Widespread informality leaving half of the Mexicans behind remains a key structural challenge with important implications in terms of productivity, economic growth, inequality of income, lack of contribution to the fiscal effort and structural poverty. The core of the problem in Mexico lies in the limited fiscal space and in the high level of informality. The very low tax collection capacity is a major issue in Mexico, which compromises the implementation of the National Development Plan (NDP) 2018-2024 and the achievement of the SDGs. The average tax revenue of Mexico amounts only to 17.9% of GDP, the lowest among OECD countries and 5% of Mexican GDP is lost to corruption yearly, according to the Mexican Institute for Competitiveness (2021).&nbsp;Despite its political narrative in favour of the most vulnerable, the current response of the Government to address inequalities and to mitigate the social and economic effects of the pandemic has been very modest compared to other emerging market economies and social programmes implemented under the NDP are not supported by sustainable outcomes. On the contrary, budget cuts and downsizing of intermediate bodies have been the common thread over the past four years.&nbsp;The limited&nbsp;fiscal space coupled with the governmental commitment towards austerity limits considerably the scope of public policies and investments necessary for reversing social fragmentation and growing inequalities (SGD 10, priority 5 MIP), and for promoting sustainable growth (SGD 8, priority 3 MIP) and tackling pressing global challenges.If at federal level, observers note certain non-action, the sub-national level is firmly engaged in the modernisation of public finance and tax administrations with a view of expanding the fiscal space to increase public revenue to invest more and better in the reduction of poverty and the fight against inequalities. The proposed intervention has been elaborated jointly with the State of Guanajuato in coordination with nine States and will contribute to the Team Europe Initiative on Social Cohesion coordinated by EU Member States, with an active engagement of DE, FR, NL and SP and with the technical support of European expertise.&nbsp;The Action will support the reduction of inequalities and the increase of social cohesion by strengthening state and municipal public finances in Mexico: both from the revenue side, supporting the tax policy and administration, and from the expenditure side, improving the effectiveness, impact and transparency of public spending to promote inclusive and sustainable development. Inclusive and secure digital mechanisms and tools will developed and State digital agenda will be supported as Ministries of Finance are responsible for digitalisation.&nbsp;The main stakeholders are the State Ministries of Finance and Tax Administrations from the states of Aguascalientes, Chihuahua, Coahuila, Guanajuato, Jalisco, Michoacán, Morelos, Querétaro, Yucatán, Zacatecas with a possible future involvement of additional States, as the process is definitively open. The population of this ten States that will benefit from better services and more transparency totals around 33 million people. State congress, municipalities, private sector, think-tanks and civil society organisations will be fully associated to the Action.&nbsp;