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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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    References listed on IDEAS

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    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. Freddy Paúl Llerena Pinto & M. Cristhina Llerena Pinto & M. Andrea Llerena Pinto, 2015. "Social Spending, Taxes and Income Redistribution in Ecuador," Commitment to Equity (CEQ) Working Paper Series 28, Tulane University, Department of Economics.
    3. Peter Lynn & Annette Jäckle & Stephen P. Jenkins & Emanuela Sala, 2012. "The impact of questioning method on measurement error in panel survey measures of benefit receipt: evidence from a validation study," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 175(1), pages 289-308, January.
    4. 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.
    5. Bruce D. Meyer & Wallace K. C. Mok & James X. Sullivan, 2009. "The Under-Reporting of Transfers in Household Surveys: Its Nature and Consequences," NBER Working Papers 15181, National Bureau of Economic Research, Inc.
    6. Francesco Figari & Maria Iacovou & Alexandra Skew & Holly Sutherland, 2012. "Approximations to the Truth: Comparing Survey and Microsimulation Approaches to Measuring Income for Social Indicators," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 105(3), pages 387-407, February.
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    Cited by:

    1. Xavier Jara & David Rodríguez, 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).
    2. H. Xavier Jara & María Cecilia Deza Delgado & Nicolás Oliva & Javier Torres, 2023. "Financial disincentives to formal employment and tax-benefit systems in Latin America," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(1), pages 69-113, February.

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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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