Progressivity and decomposition of VAT in the Mexican border, 2014

We measure the general redistributive effect in the Mexican fiscal system and its northern border with two decomposition approaches. The novelty of this application lies in the use of non-parametric techniques and the fact that we did not assume any functional relationship among the variables in analysis. Our paper contributes with an assessment of the new 2014 fiscal reform according to the Value Added Tax (VAT) and its effects on the households. A tax-benefit system with relative progressivity but high HI effect is found as well as an increase on tax revenues up to 4 percent of GDP from VAT in the border as well. Our analytical method to decompose the total progressivity measured by the contributions of different tax sources from VAT, allow us to conclude which sort of products should or should not be taxed with the general rate.