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Who pays for a Value Added Tax Hike at an International Border? Evidence from Mexico

Author

Listed:
  • Emmanuel Chavez

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Cristobal Dominguez

    (Comision Nacional Bancaria y de Valores)

Abstract

This research studies the effects of a value added tax (VAT) reform at Mexico's international frontiers. The reform raised the VAT rate from 11 to 16 percent at localities close to the international borders. We use the traditional "static" difference-in-differences methodology as well as dynamic difference-in-differences. The treatment group is composed of municipalities in the area where the VAT increased, and the control group is composed of municipalities close to the treatment group. We nd that the VAT hike had a positive effect on prices of around half the size of the full pass-through conter-factual. In addition, the reform had a negative effect on workers' wages and no effect on employment. The negative e ect on workers' real incomes is not smoothed out with credits. We nd evidence of a negative effect on consumption at Mexico's northern border due to the reform. However, we nd no evidence of an increase in shopping at the United States side of the border.

Suggested Citation

  • Emmanuel Chavez & Cristobal Dominguez, 2021. "Who pays for a Value Added Tax Hike at an International Border? Evidence from Mexico," PSE Working Papers halshs-03364026, HAL.
    • Handle: RePEc:hal:psewpa:halshs-03364026
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03364026
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    References listed on IDEAS

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    Keywords

    Worker purchasing power; Value Added Tax; Taxation; Border Crossing;
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