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Disentangling the Effects of Large Minimum Wage and VAT Changes on Prices: Evidence from Mexico

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  • Calderón, Mariana
  • Cortés, Josué
  • Pérez Pérez, Jorge
  • Salcedo, Alejandrina

Abstract

In January 2019, in an effort to boost activity on the northern Mexican border, the authorities increased the minimum wage by 100 percent and decreased the value-added tax (VAT) by half. Disentangling both effects, we find increments in prices due to the minimum wage hike that were more than offset by the decreases associated with the VAT. In the absence of both policy changes, average prices would have been higher. The share of informal labor in the production of different goods seems to be playing a role in the impact of the minimum wage on prices.

Suggested Citation

  • Calderón, Mariana & Cortés, Josué & Pérez Pérez, Jorge & Salcedo, Alejandrina, 2023. "Disentangling the Effects of Large Minimum Wage and VAT Changes on Prices: Evidence from Mexico," Labour Economics, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:labeco:v:80:y:2023:i:c:s0927537122001841
    DOI: 10.1016/j.labeco.2022.102294
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    More about this item

    Keywords

    Minimum wage; Value-added tax; Prices;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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