Inequality and fiscal redistribution in Mexico: 1992-2015

Abstract

This paper uses income and expenditure surveys from 1992 to 2014 and public tax and spending accounts to estimate the redistributive impact of Mexico's fiscal system over this period. It presents standard and marginal benefit incidence analysis for the principal public transfers (education, health, social security, direct cash transfers) in 1992-2014, and for the full fiscal system for 2008-14. The paper also estimates the effects of a major recent fiscal reform for the years 2015-18: the transition from large subsidies to taxes on petrol. The analysis shows a continuous improvement in the redistributive effects of the fiscal system through the 1990s and 2000s associated with an increase in social spending and in the progressivity of this spending over this period. This trend stagnated and reversed after 2008/2010, reflecting in part an interruption of the expansive and progressive trend of social transfers, but especially a sharp decline of net indirect subsidies. JEL classification: D31, H22, H42, I38

Inequality in Mexico: Labour markets and fiscal redistribution 1989–2014

“…Based on results in Scott et al (2017), here we analyse the redistributive and poverty-reducing effects of the fiscal system-i.e. taxes (personal and indirect), transfers (in cash and in kind), and (mainly) consumption subsidies-for the period from 1996 to 2014 (and a simulation of policy changes for 2015), 28 though the tax side is only included for the 2008-14 period.…”

“…In more recent years, in the face of collapsing oil revenues due to declining international oil prices as well as declining oil production (from 5.9 per cent of GDP in 2012 to 1.6 per cent in 2016), non-oil tax revenues were at last significantly increased: from roughly 10 per cent in 2014 to 14 per 29 For an overview of the extensive PROGRESA evaluation literature, see Parker and Todd (2017). 30 For a detailed description of the programmes, see Scott et al (2017). 31 For an overview of the evolution of multi-dimensional poverty and Mexico's social programmes, see CONEVAL (2017a, 2017b), respectively.…”

“…32 For a detailed description of the methodology, data, and caveats, see Scott et al (2017). 33 As discussed in Lustig and Higgins (2018: 16), 'social insurance contributory pensions are partly deferred income and therefore should have a portion of them added to Market Income (and contributions subtracted from factor income); and partly government transfer and therefore a portion of them should be included with the rest of government transfers (and contributions treated as any other direct tax).…”

“…Here we present results for the first scenario. Results with contributory pensions as pure transfers should be requested from John Scott, lead author of Scott et al (2017). Note that non-contributory pensions are always treated as a pure government transfer.…”

“…An alternative and bolder policy scenario would be to increase the size of the universal basic income to equal the average poverty gap in 2014 (instead of keeping it equal to the total current budget allocated to transfers divided by the population). According to Scott et al (2017), the fiscal cost of this basic income would be 2.87 per cent of GDP. Although this would represent a significant commitment in the context of Mexico's limited tax revenues, it is still below both the recent increase in net indirect taxes and the current tax-financed transfers to the contributory pension systems.…”