 The Price and Welfare Effects of The Value-Added Tax: Evidence from MexicoRodrigo Mariscal and Alejandro Werner No 2018/240, IMF Working Papers from International Monetary Fund Abstract: In this paper we analyze the incidence of the VAT and its effects on the income distribution. To identify these effects, we rely on two tax reforms undertaken in Mexico that increased the VAT rate for a group of cities and left the rest unaffected. We compare the inflation rate of the affected cities with the exempted cities before and after the law changed. We find that the effect on prices is limited and conclude that the burden of the tax is indeed shared between producers and consumers. Regarding welfare, we find that the VAT is progressive in both absolute and relative terms to the overall expenditure. Finally, we show that an identical change in the VAT rate when inflation is high and persistent doubles its pass-through to inflation and its welfare loss for the average household. Keywords: WP; inflation rate; price index; center city; Value-Added Tax; Tax Incidence; Economic Welfare; Inflation Pass-Through; Difference-in-differences; VAT reform; VAT effect; VAT change; VAT-taxed goods; Inflation; Consumer price indexes; Price indexes (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2018/240 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC. |
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