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dc.titleA Personalized VAT with Capital Transfers: A Reform to Protect Low-Income Households in Mexico
dc.contributor.authorKotlikoff, Laurence J.
dc.contributor.authorLagarda, Guillermo
dc.contributor.authorMarin, Gabriel
dc.contributor.orgunitDepartment of Research and Chief Economist
dc.coverageMexico
dc.date.available2023-07-24T00:07:00
dc.date.issue2023-07-24T00:07:00
dc.description.abstractThe Value-Added Tax (VAT) is the most prevalent consumption tax globally, yet it is frequently deemed highly regressive. To address this, we propose a Personalized VAT (PVAT) devised in conjunction with a distributional policy. We aim to achieve three objectives: increase revenue collection, achieve progressivity, and disrupt the intergenerational dependency of low-income households. We use Mexico as a case study, showing that eliminating all special VAT regimes and standardizing the rate at 16% could contribute an additional 2.2% of GDP to fiscal revenues. However, such a reform could have severe negative welfare impacts on the poor. To tackle this dilemma, we propose several PVAT scenarios. Our results indicate that a PVAT could be fiscally neutral or even increase revenues by up to 0.83% of GDP, while benefiting the lowest-income households. Lastly, we analyze the general equilibrium effects of a PVAT and various distributional policies, including lump-sum and capital transfers. For this purpose, we employ an overlapping generations model calibrated for Mexico. Our simulations reveal welfare enhancing and output growth results through a PVAT policy that includes capital transfers, thereby presenting a viable strategy for breaking intergenerational dependency.
dc.format.extent52
dc.identifier.doihttp://dx.doi.org/10.18235/0005028
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/A-Personalized-VAT-with-Capital-Transfers-A-Reform-to-Protect-Low-Income-Households-in-Mexico.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectRating
dc.subjectElectricity Consumption
dc.subjectValue-Added Tax
dc.subjectTaxation
dc.subjectGross Domestic Product
dc.subjectLow-Wage
dc.subjectAir Conditioning
dc.subjectSaving
dc.subjectMunicipal Government
dc.subjectEconomy
dc.subjectPublic Expenditure
dc.subjectElectricity Tariff
dc.subjectTax Reform
dc.subjectTariff System
dc.subjectClimate Change
dc.subjectIncome Distribution
dc.subject.jelcodeE62 - Fiscal Policy
dc.subject.jelcodeH21 - Efficiency • Optimal Taxation
dc.subject.jelcodeO11 - Macroeconomic Analyses of Economic Development
dc.subject.jelcodeO12 - Microeconomic Analyses of Economic Development
dc.subject.keywordsValue-added tax;Personalized value-added Tax;Tax reform;Overlappinggenerations;Inci-dence
dc.typeWorking Papers
idb.identifier.pubnumberIDB-WP-01475
idb.operationRG-K1089
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