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The effect of doubling the minimum wage and decreasing taxes on inflation in Mexico

Author

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  • Campos-Vazquez, Raymundo M.
  • Esquivel, Gerardo

Abstract

We analyze the effect on inflation of doubling the minimum wage and cutting the value-added tax in half. Annual inflation decreased by 1.8 percentage points, suggesting that the minimum wage increase had a limited or even null effect on prices.

Suggested Citation

  • Campos-Vazquez, Raymundo M. & Esquivel, Gerardo, 2020. "The effect of doubling the minimum wage and decreasing taxes on inflation in Mexico," Economics Letters, Elsevier, vol. 189(C).
  • Handle: RePEc:eee:ecolet:v:189:y:2020:i:c:s0165176520300616
    DOI: 10.1016/j.econlet.2020.109051
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    References listed on IDEAS

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    1. Sara Lemos, 2008. "A Survey Of The Effects Of The Minimum Wage On Prices," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 187-212, February.
    2. Juan Carlos Suárez Serrato & Owen Zidar, 2016. "Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 106(9), pages 2582-2624, September.
    3. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
    4. Rodrigo Mariscal & Alejandro M. Werner, 2018. "The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico," IMF Working Papers 18/240, International Monetary Fund.
    5. Peter Harasztosi & Attila Lindner, 2019. "Who Pays for the Minimum Wage?," American Economic Review, American Economic Association, vol. 109(8), pages 2693-2727, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Prices; Inflation; Minimum wage; Taxes; Mexico;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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