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The non-optimality of the Mexican indirect tax system

In: Fiscal Inclusive Development: Microsimulation Models for Latin America

Author

Listed:
  • Castañon-Herrera, Alberto

    (Benemérita Universidad Autónoma de Puebla)

  • Urzúa, Carlos M.

    (Tecnológico de Monterrey, Campus Ciudad de México)

Abstract

This chapter starts with a review of the marginal tax reform methodology that was first advanced by Ahmad and Stern (1984), as well as its second-order variant introduced by Urzúa (2005). After that, it reviews some aspects of the estimation of demand systems, a topic that, although well known to applied econometricians, might be unfamiliar to practitioners. Finally, using an estimated demand system, the paper identifies marginal and second-order improvements in the current Mexican indirect tax system. For the non-experts, an appendix provides a computer code in Stata that can be used to estimate demand systems of the type considered here.

Suggested Citation

  • Castañon-Herrera, Alberto & Urzúa, Carlos M., 2012. "The non-optimality of the Mexican indirect tax system," EGAP Chapters, in: Urzúa, Carlos M. (ed.), Fiscal Inclusive Development: Microsimulation Models for Latin America, Tecnológico de Monterrey, Campus Ciudad de México.
  • Handle: RePEc:ega:capitu:201202
    as

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    References listed on IDEAS

    as
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    5. Lahatte, Agenor & Miquel, Ruth & Laisney, Francois & Preston, Ian, 1998. "Demand systems with unit values:: A comparison of two specifications," Economics Letters, Elsevier, vol. 58(3), pages 281-290, March.
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    10. Nicita, Alessandro, 2004. "Efficiency and equity of a marginal tax reform - income, quality, and price elasticities for Mexico," Policy Research Working Paper Series 3266, The World Bank.
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    More about this item

    Keywords

    Mexico; microsimulation models; marginal tax reform; Ahmad-Stern; social welfare; demand systems;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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