Abstract
We measured, for the first time, the general redistributive effect in the Mexican fiscal system with the Duclos-Jalbert-Araar decomposition approach, obtaining: vertical equity, horizonal inequity (HI) and reranking effect. The novelty of this application lies in the use of non-parametric techniques and the fact that we did not assume any functional relationship between the variables in our analysis. Our paper contributes with an assessment of the fiscal reform that took place in 2014 and compares it with the previous situation. A tax-benefit system with relative progressivity but high HI effect is found, as well as an increase on tax revenues up to 5.2 and 3.7 percent of GDP for income tax and VAT respectively.
Highlights
Tax and benefit systems have a significant influence on disposable income distribution when they are able to reduce market income differences
In the Mexican case, a country with persistent levels of disparities and income inequality; we provide some elements that contribute to highlight this inequality as a result from the fiscal system
We develop the novel methodology of progressivity curve, which accounts for an order of stochastic dominance on evaluation and is able to determine the improvement of the fiscal reform or any fiscal system composed by tax and benefit components
Summary
Tax and benefit systems have a significant influence on disposable income distribution when they are able to reduce market income differences. Success or failure of the implementation of fiscal policies to meet its purpose have been evaluated over time, with respect to policies related to the pension systems, social security, health and medicare services, housing and even the targeting of different conditional transfers as the programs with greatest impact on the well-being of the most vulnerable agents. This is how fiscal policy appears with the power accrued in their redistributive essence, to the extent that part of the collection of revenues for social spending should be assigned to programs of benefits allocated to the contributors in the system (Musgrave, 2001: 68). There has been a renewed interest in discussing theoretical and empirical issues about the redistributive mechanisms of income, where one role of the state can be to improve the social welfare of population through redistributive mechanisms of income, which are the collection of taxes and the provision of benefit programs
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