{
  "title": "The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico",
  "publication": "IMF Working Papers, November 8, 2018",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2018/11/08/the-value-added-tax-evidence-from-mexico-46308",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2018/11/08/the-value-added-tax-evidence-from-mexico-46308",
  "overlayPath": "/en/publications/wp/issues/2018/11/08/the-value-added-tax-evidence-from-mexico-46308/index.md",
  "summary": "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.",
  "sections": [
    {
      "heading": "Summary and Research Question",
      "content": "- Authors: Rodrigo Mariscal, Alejandro M. Werner\n- Date: November 8, 2018\n- Objective: Analyze the incidence of the VAT and its effects on the income distribution using two tax reforms in Mexico that increased the VAT rate for a group of cities while leaving the rest unaffected.\n- Identification strategy: Compare the inflation rate of affected cities with exempted cities before and after the law changed (difference-in-differences approach referenced in keywords)."
    },
    {
      "heading": "Methodology",
      "content": "- Natural experiment: Two VAT rate increases implemented for a subset of cities; other cities exempted.\n- Empirical comparison: Inflation rates and price indexes of affected versus exempted cities, before and after reforms.\n- Key concepts and techniques referenced: Consumer price indexes, price index, inflation pass-through, tax incidence, economic welfare."
    },
    {
      "heading": "Key Findings",
      "content": "- Price effects:\n  - \"The effect on prices is limited.\"\n  - Conclusion: \"The burden of the tax is indeed shared between producers and consumers.\"\n- Welfare and distribution:\n  - \"The VAT is progressive in both absolute and relative terms to the overall expenditure.\"\n- Interaction with inflation:\n  - \"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.\""
    },
    {
      "heading": "Implications and Interpretations",
      "content": "- Incidence: VAT increases do not fully pass through to consumer prices; producers absorb part of the burden.\n- Equity: The VAT, in this context, exhibits progressive effects both in absolute and relative terms with respect to overall expenditure.\n- Macro-environment sensitivity: High and persistent inflation amplifies both price pass-through and welfare losses — doubling both for the average household when compared to low or non-persistent inflation environments.\n\n---\n\n Content in this bundle\n\n- The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico, WP/18/240, November 2018\n  - The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico, WP/18/240, November 2018 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico, WP/18/240, November 2018 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2018/11/08/the-value-added-tax-evidence-from-mexico-46308"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2018/11/08/the-value-added-tax-evidence-from-mexico-46308/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2018/11/08/the-value-added-tax-evidence-from-mexico-46308/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2018/11/08/the-value-added-tax-evidence-from-mexico-46308/bundle-manifest.json)",
    "Authors: Rodrigo Mariscal, Alejandro M. Werner",
    "Published: November 8, 2018",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484381632.001",
    "Authors: Rodrigo Mariscal, Alejandro M. Werner",
    "Date: November 8, 2018",
    "Objective: Analyze the incidence of the VAT and its effects on the income distribution using two tax reforms in Mexico that increased the VAT rate for a group of cities while leaving the rest unaffected.",
    "Identification strategy: Compare the inflation rate of affected cities with exempted cities before and after the law changed (difference-in-differences approach referenced in keywords).",
    "Natural experiment: Two VAT rate increases implemented for a subset of cities; other cities exempted.",
    "Empirical comparison: Inflation rates and price indexes of affected versus exempted cities, before and after reforms.",
    "Key concepts and techniques referenced: Consumer price indexes, price index, inflation pass-through, tax incidence, economic welfare.",
    "Price effects:",
    "Welfare and distribution:",
    "Interaction with inflation:",
    "Incidence: VAT increases do not fully pass through to consumer prices; producers absorb part of the burden.",
    "Equity: The VAT, in this context, exhibits progressive effects both in absolute and relative terms with respect to overall expenditure.",
    "Macro-environment sensitivity: High and persistent inflation amplifies both price pass-through and welfare losses — doubling both for the average household when compared to low or non-persistent inflation environments.",
    "**The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico, WP/18/240, November 2018**"
  ],
  "related": [
    {
      "title": "The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico, WP/18/240, November 2018",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/wp/2018/wp18240.pdf",
      "summary": {
        "path": "/-/media/files/publications/wp/2018/wp18240.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/wp/2018/wp18240.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2018/11/08/the-value-added-tax-evidence-from-mexico-46308/index.md",
    "json": "/en/publications/wp/issues/2018/11/08/the-value-added-tax-evidence-from-mexico-46308/index.json",
    "bundleManifest": "/en/publications/wp/issues/2018/11/08/the-value-added-tax-evidence-from-mexico-46308/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-18T14:19:33.856Z"
}