Redistributive effects of fiscal policies in Mexico: Corrections for top income measurement problems

Abstract

This article assesses the redistributive effects of fiscal instruments in Mexico in 2010–2014, correcting for top-income measurement problems. Two correction methods are applied—survey-sample reweighting for households' nonresponse probability and replacing of top incomes using smooth Pareto distributions—to reestimate the effects of pensions, transfers, taxes, and subsidies. These corrections yield higher inequality measures, consistent between the reweighting and replacing methods. Taxable income shows the highest inequality and undergoes the highest upward correction for top-income problems, whereas nontaxable income is strongly equalizing. Contributory pensions are inequality-neutral, while transfers, taxes, and subsidies are equalizing. In-kind transfers, cash-like transfers, and direct taxes have the strongest equalizing effects. Top-income measurement challenges retain their magnitude across years 2010, 2012, and 2014, but household nonresponse becomes more positively selected, causing greater biases in later years. © 2021 The Authors. Latin American Policy published by Wiley Periodicals LLC on behalf of Policy Studies Organisation.