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Tax-benefit Microsimulation and Income Redistribution in Ecuador

Author

Listed:
  • H Xavier Jara

    () (Institute for Social and Economic Research, University of Essex, Colchester, UK.)

  • Marcelo Varela

    () (Instituto de Altos Estudios Nacionales, Quito, Ecuador.)

Abstract

The aim of this paper is to explore the redistributive effects of taxes and benefits in Ecuador using two different approaches: direct use of reported taxes and benefits in survey data, and use of simulated taxes and benefits. We make use of representative household microdata from ENIGHUR 2011-2012, which contains detailed information on labour and nonlabour income, taxes and social insurance contributions, public pensions, social benefits and expenditure, as well as personal and household characteristics. First, ECUAMOD, the tax-benefit microsimulation model for Ecuador is used to simulate cash benefit entitlements, personal income tax and social insurance contribution liabilities, as well as indirect taxes. Then, the redistributive effect of simulated tax-benefit policies is compared to that obtained from taxes, social insurance contributions and benefits taken directly from the data. Our results show that simulated taxes and social insurance contributions capture better the number of taxpayers and aggregate revenue amounts from official statistics, compared to information taken directly from the data. Moreover, using reported data on taxes and social insurance contributions underestimates their redistributive effect, compared to simulated policies. Underreporting of income components in survey data and the difficulty of simulating complex eligibility rules for benefits in microsimulation models are some of the factors driving the differences between the two approaches. Our paper concludes with a discussion of the advantages offered by microsimulation for policy analysis

Suggested Citation

  • H Xavier Jara & Marcelo Varela, 2019. "Tax-benefit Microsimulation and Income Redistribution in Ecuador," International Journal of Microsimulation, International Microsimulation Association, vol. 12(1), pages 52-82.
  • Handle: RePEc:ijm:journl:v:12:y:2019:i:1:p:52-82
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    File URL: https://www.microsimulation.org/IJM/V12_1/IJM_12_1_2.pdf
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    References listed on IDEAS

    as
    1. Olivier Bargain & H. Xavier Jara & David Rodriguez, 2017. "Learning from your neighbor: tax-benefit systems swaps in Latin America," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(4), pages 369-392, December.
    2. Mustafa Besim & Glenn Jenkins, 2005. "Tax compliance: when do employees behave like the self-employed?," Applied Economics, Taylor & Francis Journals, vol. 37(10), pages 1201-1208.
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    Cited by:

    1. H. Xavier Jara & David Rodriguez, 2019. "Financial disincentives to formal work: Evidence from Ecuador and Colombia," WIDER Working Paper Series wp-2019-14, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    TAXES; BENEFITS; MICROSIMULATION; ECUADOR;
    All these keywords.

    JEL classification:

    • 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
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation

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