Efficiency and equity of a marginal tax reform - income, quality, and price elasticities for Mexico
AbstractThe author investigates the effects of a marginal tax reform on household welfare in Mexico. He estimates the extent to which Mexican households react to changes in prices, and uses the estimates to simulate changes in social welfare resulting from marginal tax reform. Results indicate that poorer households tend to have significantly larger income and price elasticities. Hence, to correctly evaluate the effects of economic policies on the poor, it is important to estimate elasticities that reflect the behavioral responses of the poor rather than of the entire population. The results from the micro simulation suggest that since poorer households rely mostly on maize, legumes, and vegetables to fulfill their caloric intake, any price reform that reduces the price of these products will have a larger effect on the welfare of poor households. In particular, reducing the taxes on maize, alcoholic beverages, and vegetables would be both more equitable and more efficient in terms of social welfare. Meanwhile, a reduction in the tax on legumes, sugar, and oils and fats, while inefficient, would contribute to reduce inequality. Finally, a decrease in the price of meat, wheat, and dairy products, while benefiting higher-income households, would have only a marginal impact on poorer households.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 3266.
Date of creation: 01 Apr 2004
Date of revision:
Economic Theory&Research; Crops&Crop Management Systems; Food&Beverage Industry; Environmental Economics&Policies; Markets and Market Access; Environmental Economics&Policies; Economic Theory&Research; VN-Acb Mis -- IFC-00535908; Inequality; Markets and Market Access;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-16 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Elena Ianchovichina & Alessandro Nicita & Isidro Soloaga, 2002.
"Trade Reform and Poverty: The Case of Mexico,"
The World Economy,
Wiley Blackwell, vol. 25(7), pages 945-972, 07.
- Ianchovichina, Elena & Nicita, Alessandro & Soloaga, Isidro, 2001. "Trade reform and household welfare : the case of Mexico," Policy Research Working Paper Series 2667, The World Bank.
- Deaton, Angus, 1990.
"Price elasticities from survey data : Extensions and Indonesian results,"
Journal of Econometrics,
Elsevier, vol. 44(3), pages 281-309, June.
- Deaton, A., 1988. "Price Elasticities From Survey Data: Extensions And Indonesian Results," Papers 138, Princeton, Woodrow Wilson School - Development Studies.
- Deaton, A., 1990. "Price Elasticities From Surveys Data: Extensions And Indonesian Results," Papers 69, World Bank - Living Standards Measurement.
- Deaton, A., 1988.
"Quality, Quantity, And Spatial Variation Of Price,"
30, World Bank - Living Standards Measurement.
- Ahmad,Etisham & Stern,Nicholas, 1991.
"The Theory and Practice of Tax Reform in Developing Countries,"
Cambridge University Press, number 9780521397421, April.
- Ahmad,Etisham & Stern,Nicholas, 1991. "The Theory and Practice of Tax Reform in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521265638, April.
- Deaton, Angus, 1987. "Estimation of own- and cross-price elasticities from household survey data," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 7-30.
- Deaton, A. & Grimard, F., 1992. "Demand Analysis and Tax Reform in Pakistan," Papers 85, World Bank - Living Standards Measurement.
- Charles Ackah, & Simon Appleton, . "Food Price Changes and Consumer Welfare in Ghana in the 1990s," Discussion Papers 07/03, University of Nottingham, CREDIT.
- Yoko Niimi, 2005. "An Analysis of Household Responses to Price Shocks in Vietnam: Can Unit Values Substitute for Market Prices?," PRUS Working Papers 30, Poverty Research Unit at Sussex, University of Sussex.
- Susan Olivia & John Gibson, 2008.
"Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia,"
The Energy Journal,
International Association for Energy Economics, vol. 0(Number 1), pages 21-40.
- Olivia, Susan & Gibson, John, 2006. "Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25745, International Association of Agricultural Economists.
- Susan Olivia & John Gibson, 2006. "Household Energy Demand and the Equity and Efficiency Aspects of Subsidy Reform in Indonesia," Working Papers in Economics 06/06, University of Waikato, Department of Economics.
- Ekaterina Krivonos & Marcelo Olarreaga, 2009.
"Sugar Prices, Labor Income, and Poverty in Brazil,"
JOURNAL OF LACEA ECONOMIA,
LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
- Krivonos, Ekaterina & Olarreaga, Marcelo, 2006. "Sugar prices, labor income, and poverty in Brazil," Policy Research Working Paper Series 3874, The World Bank.
- Krivonos, Ekaterina & Olarreaga, Marcelo, 2005. "Sugar Prices, Labour Income and Poverty in Brazil," CEPR Discussion Papers 5383, C.E.P.R. Discussion Papers.
- Castañon-Herrera, Alberto & Urzúa, Carlos M., 2012.
"The non-optimality of the Mexican indirect tax system,"
in: Fiscal Inclusive Development: Microsimulation Models for Latin America
Tecnológico de Monterrey, Campus Ciudad de México.
- Castañón-Herrera, Alberto & Urzúa, Carlos M., 2011. "The non-optimality of the Mexican indirect tax system," EGAP Working Papers 2011-02, Tecnológico de Monterrey, Campus Ciudad de México.
- Nicita, Alessandro, 2004. "Who benefited from trade liberalization in Mexico? Measuring the effects on household welfare," Policy Research Working Paper Series 3265, The World Bank.
- A. K. Seth & Ankur Bhatnagar, 2008. "Influence Of Demographic Variables On Indirect Tax Setting For Selected Indian States," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 53(02), pages 293-316.
- Chen, Yuyu & Xing, Weibo, 2011. "Quantity, quality, and regional price variation of cigarettes: Demand analysis based on a household survey in China," China Economic Review, Elsevier, vol. 22(2), pages 221-232, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.