Alonso Ortiz, Jorge and Leal Ordóñez, Julio C. (2011): Taxes, Transfers and the Distribution of Employment in Mexico.
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The informal sector accounts for a substantial fraction of employed population in Mexico and other Latin American countries. In this paper we study the interaction between the tax and transfers system and the size and composition of informal sector. To do that we build a search model that can be calibrated to the Mexican data. Our model features two employment statuses: employed and unemployed; and two sectors: formal and informal. We estimate our model to data from Encuesta Nacional de Ocupaci ́on y empleo (ENOE) by simulated GMM. Then we perform three different policy analyses: changes in the distribution of the transfers between formal and informal sector workers, changes in the size of the transfer system, and changes in the progressivity of taxes and transfers (pending). Our model is able to capture key features of Mexican labor markets, such as the distribution of the labor force across sectors and the distribution of accepted wage offers. Dividing transfers equally between formal and informal sector workers increases the size of the informal sector by 5 percentage points, it also increases average wages in the formal sector by 6% whereas wages in the informal sector fall by 4%. When we double the size of transfers, the size of informal sector falls by 5 percentage points. However, it has a big effect on the distribution of accepted wage offers: average wages increase by 10% in the formal sector and they raise by 16% in the informal sector.
|Item Type:||MPRA Paper|
|Original Title:||Taxes, Transfers and the Distribution of Employment in Mexico|
|Keywords:||Informal Sector, Mexico, Taxes, Transfers, General Equilibrium, Frictions|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials
J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J21 - Labor Force and Employment, Size, and Structure
H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General
H - Public Economics > H5 - National Government Expenditures and Related Policies > H53 - Government Expenditures and Welfare Programs
|Depositing User:||Jorge Alonso Ortiz|
|Date Deposited:||05. Jul 2011 00:58|
|Last Modified:||19. Feb 2013 23:32|
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