{"title":"The legal and real incidence of VAT Reforms in Mexico: Distributional effects and impacts on poverty","authors":"Aldair Rivas , Emmanuel Chávez , Irvin Rojas , Aaron Zaragoza","doi":"10.1016/j.econlet.2025.112236","DOIUrl":null,"url":null,"abstract":"<div><div>This paper studies the price effects of two asymmetric value-added tax (VAT) reforms in Mexico: a 2014 VAT hike and a 2021 VAT cut implemented in the southern border region. Our estimates show that consumers pay for 25 percent of the VAT change in both reforms, but consumer incidence differs across goods. With the price effect estimates (real incidence), we determine the impact of the VAT reforms on income distribution and poverty. We compare these impacts with the full passthrough of the VAT on prices (legal incidence). Depending on the type of price incidence, the VAT is allocated differently along the income distribution, and the impacts on poverty can vary considerably.</div></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"248 ","pages":"Article 112236"},"PeriodicalIF":2.1000,"publicationDate":"2025-02-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Economics Letters","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0165176525000734","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
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Abstract
This paper studies the price effects of two asymmetric value-added tax (VAT) reforms in Mexico: a 2014 VAT hike and a 2021 VAT cut implemented in the southern border region. Our estimates show that consumers pay for 25 percent of the VAT change in both reforms, but consumer incidence differs across goods. With the price effect estimates (real incidence), we determine the impact of the VAT reforms on income distribution and poverty. We compare these impacts with the full passthrough of the VAT on prices (legal incidence). Depending on the type of price incidence, the VAT is allocated differently along the income distribution, and the impacts on poverty can vary considerably.
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Many economists today are concerned by the proliferation of journals and the concomitant labyrinth of research to be conquered in order to reach the specific information they require. To combat this tendency, Economics Letters has been conceived and designed outside the realm of the traditional economics journal. As a Letters Journal, it consists of concise communications (letters) that provide a means of rapid and efficient dissemination of new results, models and methods in all fields of economic research.
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