**Over the 2003–2011 period, PEMEX captured 10.6 percent of the net capital income.** In terms of assets, based on the book assets and investment of PEMEX, a perpetual inventory method asset series was created, in order to make it comparable with the private sector asset series. This asset series raises the value of PEMEX assets by 17.5 percent on average over the timeframe covered. While PEMEX assets only averaged 3.2 percent of the total private sector capital assets during the 2003–2011 period, PEMEX investment in fixed capital assets averaged 10.9 percent of total private investment. PEMEX net capital income and assets generated a high rate of return of 36.8 percent on average, but, interestingly, the rate of return dropped from 42.6 percent in the 2003–2008 period to 25.2 percent in the 2009–2011 period, while investment levels by PEMEX rose from 7.8 percent of GDP to 11.1 percent over the same two periods. Finally, the share of the indirect taxes in the product markets attributed to capital income (about 0.1 percent) was added in order to assess the average gross rate of return to capital, which came out to 36.9 percent. Table 12 also shows the non-PEMEX entities earning the remaining 89.4 percent of net capital income on the residual 96.8 percent of capital stocks in the private sector. This results in a change of the gross rate of return to the residual private capital from an average of 11.6 percent (see Table 4) to an average of 10.7 percent (Table 12). After adjusting for the income that accrues to land and the stocks of long-term inventories, the returns to private capital net of indirect taxes are now on average 10.1 percent for the 2003–2011 period; and gross of indirect taxes attributable to capital, they go up to 10.7 percent for the same period.

**The rates of return to capital for PEMEX are higher than the rest of the private sector.** As we can observe in Table 12, if we disaggregate both income and capital shares into the private sector and PEMEX, we obtain separate and composite rates of return. From the results, we can see that the rates of return to capital are quite high for PEMEX, as the capital stock itself is small compared to the rest of the private sector. The estimated rates of return to PEMEX have been declining since 2007. Although the PEMEX rates of return on capital are on average 37 percent (and declining), their contribution to the overall returns in the economy is small due to its capital size and participation in gross operating profits in relative terms. Nevertheless, we can see the effect that PEMEX has on the rest of the economy: it makes the EOCK or the discount rate slightly higher because of its relatively high share in investment.

**Table 13 The impact of PEMEX on the EOCK: Rates of return and tax distortions relating** **<u>to PEMEX and non-PEMEX entities, 2003–2011</u>**

|Breakdown byentitytype|2003–08|2009–11|2003–11|
|---|---|---|---|
|**_PEMEX_**||||
|Taxes paid out of profits as a share of total tax revenue of Mexico|31.9%|28.3%|30.6%|
|Taxes as a share of assets|71.4%|43.6%|62.1%|
|After-tax return on assets|−1.8%|−1.8%|−1.8%|
|Required return on assets|9.5%|9.5%|9.5%|
|**Capital tax distortion (including share of indirect product market taxes)**|**60.0%**|**32.3%**|**50.8%**|
|**_Non-PEMEX_**||||
|Capital income and property taxes as a share of assets|0.5%|0.6%|0.5%|
|**Capital tax distortion(including share of indirectproduct market taxes)**|**1.1%**|**1.0%**|**1.1%**|

_Source:_ PEMEX accounts; SHCP; OECD Tax Data.

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