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Taxing for Equity a Proposal to Reform Mexico's Value-added Tax

Taxing for Equity a Proposal to Reform Mexico's Value-added Tax

Chapter:
(p.357) 10 Taxing for Equity a Proposal to Reform Mexico's Value-added Tax
Source:
Latin American Macroeconomic Reforms
Author(s):
Enrique DávilaSantiago Levy
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226302683.003.0012

This chapter analyzes the incidence of value added tax (VAT) in Mexico. It first argues that the current VAT regimes (zero-rates and exemptions for various categories of goods) are ineffective and inefficient tools with which to combat poverty, which is why they must be eliminated. However, it is essential that part of the population be compensated for the impact of adjusting VAT rates. The chapter establishes that some proportion of the country's population (low-income groups) are eligible for compensation and that individuals belonging to such groups each receive either a Slutsky transfer or a uniform compensation for all members of the target population. Next, it analyzes the type of instruments and incentives that can be used to carry out these compensations. The final section summarizes the conclusions of the analysis and makes some brief remarks on the political economy implications of the study's proposal. A commentary is also included at the end of the chapter.

Keywords:   taxation, tax policy, VAT, poverty, Slutsky transfer, compensation

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