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An applied general equilibrium analysis of fiscal reforms to fight poverty in Mexico

Author

Listed:
  • Gaspar Núñez Rodríguez

    () (Catedrático Investigador del Centro de Investigaciones Socio-Económicas (CISE) de la Universidad Autónoma de Coahuila (UAdeC) de México y miembro del Sistema Nacional de Investigadores (SNI) de México.)

  • Clemente Polo Andrés

    (Profesor del Departamento de Economía e Historia Económica de la Universidad Autónoma de Barcelona (UAB) de España.)

Abstract

The main goal of this paper is to analyze the consequences of two alternative ways of raising funds to finance poverty alleviation programs in Mexico: A Value Added Tax (VAT) reform and a personal income tax reform (IT). The impact of the reforms is analyzed with an applied general equilibrium model of the Mexican economy, calibrated using a 1996 Social Accounting Matrix. The model includes 18 production sectors, 10 representative households, the government, and the rest of the world. The cash transfers required to attain a fixed increase in the Equivalent Variation (EV) of the lowest income households are obtained either increasing effective VAT rates or IT rates. When all rates are scaled up by the same factor, the VAT reform generates a positive global EV considerably larger than the one obtained scaling the IT rates, though the latter diminishes (increases) lower (higher) income households’ contribution. Setting a uniform VAT rate results in a positive global EV considerably larger than the one obtained with a uniform IT. Moreover, the distribution gap increases in the latter case since the richest households receive the largest benefits.

Suggested Citation

  • Gaspar Núñez Rodríguez & Clemente Polo Andrés, 2008. "An applied general equilibrium analysis of fiscal reforms to fight poverty in Mexico," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 81-115, May.
  • Handle: RePEc:ere:journl:v:xxvii:y:2008:i:1:p:81-115
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    References listed on IDEAS

    as
    1. Kehoe, Timothy J & Serra-Puche, Jaime, 1991. "A General Equilibrium Appraisal of Energy Policy in Mexico," Empirical Economics, Springer, vol. 16(1), pages 71-93.
    2. Kehoe, Timothy J. & Serra-Puche, Jaime & Solis, Leopoldo, 1984. "A general equilibrium model of domestic commerce in Mexico," Journal of Policy Modeling, Elsevier, vol. 6(1), pages 1-28, February.
    3. Shoven, John B. & Whalley, John, 1972. "A general equilibrium calculation of the effects of differential taxation of income from capital in the U.S," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 281-321, November.
    4. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-1051, September.
    5. Coady, David P. & Harris, Rebecca Lee, 2001. "Evaluating transfer programs within a general equilibrium framework," FCND briefs 110, International Food Policy Research Institute (IFPRI).
    6. Paul S. Armington, 1969. "A Theory of Demand for Products Distinguished by Place of Production (Une théorie de la demande de produits différenciés d'après leur origine) (Una teoría de la demanda de productos distinguiénd," IMF Staff Papers, Palgrave Macmillan, vol. 16(1), pages 159-178, March.
    7. Coady, David P. & Harris, Rebecca Lee, 2001. "Evaluating transfer programs within a general equilibrium framework," FCND discussion papers 110, International Food Policy Research Institute (IFPRI).
    8. Decaluwe, Bernard & Martens, Andre, 1988. "CGE modeling and developing economies: A concise empirical survey of 73 applications to 26 countries," Journal of Policy Modeling, Elsevier, vol. 10(4), pages 529-568.
    9. Kehoe, Timothy J. & Serra-Puche, Jaime, 1983. "A computational general equilibrium model with endogenous unemployment : An analysis of the 1980 fiscal reform in Mexico," Journal of Public Economics, Elsevier, vol. 22(1), pages 1-26, October.
    10. Levy, Santiago, 1987. "A short-run general equilibrium model for a small, open economy," Journal of Development Economics, Elsevier, vol. 25(1), pages 63-88, February.
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    More about this item

    Keywords

    poverty alleviation; tax reforms; social accounting matrix; applied general equilibrium; equivalent variation;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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