THE EVOLUTION OF VAT RATES AND GOVERNMENT TAX REVENUE IN MEXICO |
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Authors: | José A Pagán Gökçe Soydemir José A Tijerina-Guajardo |
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Institution: | Department of Economics and Finance, University of Texas-Pan American, Edinburg, TX. 78539. E-mail;Secretaría de Hacienda y Crédito Público, Palacio Nacional, 1er. Patio Mariano 4o. Piso, México DF 06000. E-mail;Ecnomist, Secretaria de Hacienday CréPúblico, Palacio Nacional, ler. Patio Mrriano 40. Piso, Mexico DF 06000. Phone +52-5521-0606, Fax +52-5228-1225, E-mail |
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Abstract: | As a response to the 1994 Mexican peso crisis, in April 1995 the Mexican government increased the Value Added Tax (VAT) rate from 10 to 15%. More recently, policy makers have debated the potential economic impact of a reduction in the VAT rate on VAT revenue. Using a vector autoregression (VAR) model, this article analyzes the dynamics between government spending, inflation, the VAT rate, and VAT revenue in Mexico. The results from the estimated impulse response functions and variance decompositions indicate that VAT rate hikes lead to increases in government tax receipts. Further, tax collections play an important role in explaining movements in the rate of inflation in the Mexican economy. Overall, the findings are consistent with the view that increases (decreases) in the VAT rate result in larger (smaller) tax revenues. |
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