Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/119556
Authors: 
Abramovsky, Laura
Attanasio, Orazio
Phillips, David
Year of Publication: 
2015
Series/Report no.: 
IFS Working Papers W15/08
Abstract: 
Value added taxes (VAT) are an important, and in many cases increasing, source of revenue in both developed and developing countries. Unsurprisingly there is an intense academic and policy debate about the appropriate VAT rate structure, for both equity and efficiency reasons. In this paper we examine the distributional and efficiency case for VAT rate differentiation in Mexico, and analyse the effects of the 2010 reforms to Mexico's tax system, making use of a tax micro-simulation model, MEXTAX. The amendments to the initial proposed reforms were made to make the tax change more 'progressive'. We find that, measured as a proportion of income or expenditure, poorer households did gain most from the amendments, but that the cash-terms gains were much larger for households with high levels of income and expenditure. In other words, the reduction in tax take from the amendments was weakly targeted at poorer households; even simple universal cash transfers would have been much more beneficial to poor households. This shows the distributional case for zero rates of VAT on goods like food is weak - especially given the growing sophistication of cash transfer programmes in particularly middle income countries.
Subjects: 
indirect taxes
consumer demand
optimal taxation
micro-simulators
Mexico
JEL: 
H20
H21
H31
D12
D30
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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