Redistributive impacts of fiscal policies in Mexico

Working Paper 2019-497

Abstract

We assess the redistributive impacts of fiscal instruments in a 2014 Mexican household budget survey (ENIGH) correcting for potential top-income measurement problems. We use two correction methods – survey-sample reweighting for households’ nonresponse probability, and replacing of top incomes using synthetic values from the Pareto distribution – to re-estimate the impacts of pensions, transfers, taxes, and subsidies. These corrections yield higher Ginis (0–9 pc.pt. increase) and top 1% and 10% income shares (0–5, and 1–5 pc.pt. increases), consistently between the reweighting and replacing methods, and consistently across all income concepts. Moving from pre-fiscal to post-fiscal income, corrections for nonresponse abate, while corrections for mismeasurement rise. Taxable income exhibits the highest inequality, further undergoing the highest upward correction for top income problems, potentially consistent with evidence of earnings misreporting among the rich. Nontaxable income has a strong equalizing impact of 3.3–4.5 points of the Gini further growing under the top-income corrections. The corrections confirm the inequality-neutral impact of contributory pensions, and equalizing impacts of transfers, taxes and subsidies. In-kind transfers, cash-like transfers and direct taxes have the strongest equalizing impacts: 4.7–5.7, 1.6–1.9, and 1.2–2.2 points of the Gini, respectively. Indirect taxes and subsidies are weakly equalizing, by 0.4-0.6 points. Finally, top-income measurement challenges retain their magnitude across the 2010, 2012 and 2014 ENIGH, but household nonresponse becomes more positively selected over time, causing serious biases.

Authors: Vladimir Hlasny.