Inclusive Growth

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Inequality and Social Policies

An IMF country report analyzes the “income inequalities and government transfers using microdata from Mexico’s survey on household income and expenditures (ENIGH). It highlights the positive role played by government transfers in reducing inequalities over 2004-2016 and suggests that there is scope for better targeting existing social programs.”

Transfers and taxes play a much more limited role in alleviating inequalities in Mexico than in other OECD countries. The Gini reduction effect of transfers and taxes is lower in Mexico than in all OECD countries. This limited redistributive role of fiscal policies in Mexico may result from a tax system that is insufficiently progressive. It also reflects the low level of public social spending as a share of GDP, in particular on non-contributory cash transfers targeted at the poorest households.”

After a modest increase over 2007-2015, public social spending as a share of GDP has
fallen in the last two years. Public social spending increased by 2.5 percent of GDP from 2007 to
2015, reaching a maximum of 12.1 percent of GDP, before shrinking to 10.4 percent in 2017. Social
assistance and education, the first two components of public social spending, absorb together more
than 60 percent of the total, while health expenditures amount to close to a fourth.”

Mexico’s social assistance programs cover well households at the bottom of the income distribution. 31 percent of the households in the bottom income quintile benefit from Mexico’s conditional cash transfer program Prospera (formerly known as Oportunidades and initially launched as Progresa), which has served as a model for many countries around the world (Parker and Todd, 2017). Similarly, the share of households benefiting from old-age social assistance is three times higher in the first income quintile than in the fifth one. Prospera and old-age social assistance programs account for about ¾ of the decline in the Gini coefficient coming from government transfers, while they represent about half of the total government transfer amount received by an average household.”

 

An IMF country report analyzes the “income inequalities and government transfers using microdata from Mexico’s survey on household income and expenditures (ENIGH). It highlights the positive role played by government transfers in reducing inequalities over 2004-2016 and suggests that there is scope for better targeting existing social programs.”

“Transfers and taxes play a much more limited role in alleviating inequalities in Mexico than in other OECD countries. The Gini reduction effect of transfers and taxes is lower in Mexico than in all OECD countries.

Read the full article…

Posted by at 9:42 PM

Labels: Inclusive Growth

Formality and Equality – Labor Market Challenges in Mexico

An IMF country report on Mexico documents “the composition, trends, and labor market implications of informality using data from the National Employment Survey (ENOE). Over half of the employed population has informal contractual relationships in Mexico both at formal and informal firms. Informality is found to be associated with lower levels of pay –even when accounting for worker composition differences– and lower wage growth over the life cycle.”
Future labor market reforms should take a holistic approach that addresses both distributional concerns and formality barriers. One alternative is to reduce dependence on payroll taxes that are biased towards formal salaried workers while transitioning towards a social insurance system that provides good-quality services for all, irrespective of their salaried/non-salaried status. Another is easing firing and hiring restrictions of salaried workers while increasing protections to the unemployed through a more universal unemployment insurance scheme. This type of profound long-term transformations should, of course, only be implemented after careful review of policy alternatives guided by experiences in other countries and detailed impact analysis.”

Short-term reforms should build towards a system where the non-exclusive targets of boosting social protection and removing distortionary restrictions are achieved. Policy proposals, such as hikes in the minimum wage, should be gradual, viewed in the context of other distortionary polices, and carefully weigh equity benefits against the potential displacement of labor towards unproductive informality.”

An IMF country report on Mexico documents “the composition, trends, and labor market implications of informality using data from the National Employment Survey (ENOE). Over half of the employed population has informal contractual relationships in Mexico both at formal and informal firms. Informality is found to be associated with lower levels of pay –even when accounting for worker composition differences– and lower wage growth over the life cycle.”
“Future labor market reforms should take a holistic approach that addresses both distributional concerns and formality barriers.

Read the full article…

Posted by at 9:37 PM

Labels: Inclusive Growth

The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico

From a new IMF working paper:

“In this paper we analyze the incidence of the VAT and its effects on the income distribution. To identify these effects, we rely on two tax reforms undertaken in Mexico that increased the VAT rate for a group of cities and left the rest unaffected. We compare the inflation rate of the affected cities with the exempted cities before and after the law changed. We find that the effect on prices is limited and conclude that the burden of the tax is indeed shared between producers and consumers. Regarding welfare, we find that the VAT is progressive in both absolute and relative terms to the overall expenditure. Finally, we show that an identical change in the VAT rate when inflation is high and persistent doubles its pass-through to inflation and its welfare loss for the average household.”

 

From a new IMF working paper:

“In this paper we analyze the incidence of the VAT and its effects on the income distribution. To identify these effects, we rely on two tax reforms undertaken in Mexico that increased the VAT rate for a group of cities and left the rest unaffected. We compare the inflation rate of the affected cities with the exempted cities before and after the law changed.

Read the full article…

Posted by at 9:30 PM

Labels: Inclusive Growth

The Opportunity Atlas: Mapping the childhood roots of social mobility

From a new VOX post:

“Economic mobility varies dramatically across the US. This column introduces a new interactive mapping tool that traces the roots of outcomes such as poverty and incarceration back to the neighbourhoods in which children grew up. Among the insights the data reveal are that children who grow up a few miles apart in families with comparable incomes have very different life outcomes, and that moving in early childhood to a neighbourhood with better outcomes can increase a child’s income by several thousands of dollars later in life.”

“Children who move to high-upward-mobility neighbourhoods earlier in their childhood earn more as adults, as illustrated in Figure 2. This chart shows the average income (at age 35) of children raised in low- income families who move from the Central District of Seattle, a low-upward mobility area, to Shoreline, a high upward-mobility area that is ten miles north. Children who make this move at birth earn $9,000 more per year than those who move in their 20s.”

From a new VOX post:

“Economic mobility varies dramatically across the US. This column introduces a new interactive mapping tool that traces the roots of outcomes such as poverty and incarceration back to the neighbourhoods in which children grew up. Among the insights the data reveal are that children who grow up a few miles apart in families with comparable incomes have very different life outcomes, and that moving in early childhood to a neighbourhood with better outcomes can increase a child’s income by several thousands of dollars later in life.”

Read the full article…

Posted by at 3:01 PM

Labels: Inclusive Growth

Deindustrialization and Employment in Morocco

A new OCP Policy Center policy brief shows that “downward trend of employment in manufacturing in Morocco is due primarily to labor productivity improvement and that the increased deficit in manufacturing trade also plays an important role. While recognizing the crucial importance of a vibrant manufacturing sector in Morocco, this brief argues that Morocco cannot rely primarily on manufactures to “pull” labor out of agriculture. To provide more jobs, Moroccan policies should pay more attention to sectors which employ large numbers of people and where employment is expanding as a result of the ongoing structural transformation of the Moroccan economy.”

 

A new OCP Policy Center policy brief shows that “downward trend of employment in manufacturing in Morocco is due primarily to labor productivity improvement and that the increased deficit in manufacturing trade also plays an important role. While recognizing the crucial importance of a vibrant manufacturing sector in Morocco, this brief argues that Morocco cannot rely primarily on manufactures to “pull” labor out of agriculture. To provide more jobs, Moroccan policies should pay more attention to sectors which employ large numbers of people and where employment is expanding as a result of the ongoing structural transformation of the Moroccan economy.”

Read the full article…

Posted by at 9:15 PM

Labels: Inclusive Growth

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