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Residential electricity subsidies in Mexico : exploring options for reform and for enhancing the impact on the poor
Large and growing subsidies to residential consumers in Mexico have become a major policy concern. This report explains the growth of subsidies, the current distribution of subsidies across income classes, and uses utility and household survey data to simulate how alternative subsidy mechanisms could improve distributional and fiscal performance. The goal is to help inform discussion in Mexico about how to reduce subsidies and redirect them toward the poor. The findings also offer lessons for other countries that are planning tariff reforms in their electricity sectors.
eBook
Residential electricity subsidies in Mexico
Large and growing subsidies to residential consumers in Mexico have become a major policy concern. This report explains the growth of subsidies, the current distribution of subsidies across income classes, and uses utility and household survey data to simulate how alternative subsidy mechanisms could improve distributional and fiscal performance. The goal is to help inform discussion in Mexico about how to reduce subsidies and redirect them toward the poor. The findings also offer lessons for other countries that are planning tariff reforms in their electricity sectors
Publication
Employment Structure and the Rise of the Modern Tax System
This paper builds a new microdatabase that covers 100 countries at all income levels and long-run time series in the United States (1870– 2010) and Mexico (1960– 2010) to document how the modern tax system arises over development. I establish a new set of stylized facts, which show that the income tax exemption threshold decreases in the income distribution as a country develops, tracking growth in the employee share of employment that occurs gradually further down the income distribution. Additional evidence supports the interpretation that the rise in third-party covered income through increases in employee share drives expansions of the income tax base over development.
Journal Article
Water Conservation in Irrigation Can Increase Water Use
Climate change, water supply limits, and continued population growth have intensified the search for measures to conserve water in irrigated agriculture, the world's largest water user. Policy measures that encourage adoption of water-conserving irrigation technologies are widely believed to make more water available for cities and the environment. However, little integrated analysis has been conducted to test this hypothesis. This article presents results of an integrated basin-scale analysis linking biophysical, hydrologic, agronomic, economic, policy, and institutional dimensions of the Upper Rio Grande Basin of North America. It analyzes a series of water conservation policies for their effect on water used in irrigation and on water conserved. In contrast to widely-held beliefs, our results show that water conservation subsidies are unlikely to reduce water use under conditions that occur in many river basins. Adoption of more efficient irrigation technologies reduces valuable return flows and limits aquifer recharge. Policies aimed at reducing water applications can actually increase water depletions. Achieving real water savings requires designing institutional, technical, and accounting measures that accurately track and economically reward reduced water depletions. Conservation programs that target reduced water diversions or applications provide no guarantee of saving water.
Journal Article
Agricultural subsidies: cutting into forest conservation?
We examine how agricultural subsidies may induce deforestation and interact with conservation programs by analyzing two large-scale national programs in Mexico that have existed simultaneously for more than a decade: an agricultural subsidy for livestock (PROGAN) and a program of payments for ecosystem services (PES). Looking across the entire Mexican landscape, we exploit the surprises in the timing of enrollment in PROGAN's waves, fluctuations in program payments, and the change in the value of the subsidy induced by inflation and currency fluctuations to identify the impacts of the livestock subsidy on environmental outcomes. We find that PROGAN increased municipal deforestation by 7 per cent. The deforestation effects of PROGAN were smaller in municipalities with higher concentrations of PES recipients. We suggest that livestock subsidies could be better targeted to places with low deforestation risk and high livestock productivity to maximize food production and minimize negative externalities caused by deforestation.
Journal Article
From Negative to Positive Carbon Pricing in Mexico
Over the course of a decade, Mexico transitioned from a peak of 1.8% of GDP given as fuel subsidies in 2008 to generating positive fuel tax revenues equivalent to 1.6% of its GDP in 2018. This paper analyzes Mexico's carbon pricing experience: the mechanisms that made fossil fuel subsidies such a large burden on public finances, the strategies followed in its five-year phase-out, and the institutional changes that enabled crossing into positive carbon taxation, both explicit and implicit. We analyze the effect of three carbon pricing instruments: 1) the subsidy phase-out, 2) the explicit carbon taxation, and 3) the implicit carbon pricing in excise fuel taxation. We present scenarios to assess the contribution of each policy to Mexico's voluntary commitments under the Paris Agreement. The subsidy phase-out and carbon taxes phase-in significantly contributed to Mexico's carbon emissions reductions. Importantly, we show that excise taxes applied to fossil fuels accrued the largest emissions reductions across all carbon pricing mechanisms due to their magnitude. We present evidence of decoupling between fuel (gasoline and diesel) consumption and economic growth. Our findings support the emerging view that carbon pricing through fiscal policy, in Mexico and elsewhere, shouldn't be restricted to explicit carbon pricing in the form of ETS or carbon taxes. Instead, it should be understood and calculated as the sum of excise taxes net of subsidies, carbon taxes and other forms of carbon pricing, subtracting any fiscal crediting or stimuli present. Keywords: Climate Policy, Environmental Taxes and Subsidies, Externalities, Carbon Tax, Fossil Fuel Subsidies, Mexico
Journal Article
Simulating price subsidies on healthy foods in Mexico
Objective:To simulate the impact of a price subsidy (price reduction) on purchases of healthy foods with suboptimal consumption.Design:We used data from the 2018 Mexican National Household Income and Expenditure Survey, a cross-sectional study. We estimated own- and cross-price elasticities of the demand for food groups using a Linear Approximation of an Almost Ideal Demand System. Using the estimated elasticities, we derived changes in purchases associated with a 10, 20 and 30 % price reduction in healthy food groups with suboptimal consumption. We also estimated price reductions for these food groups that would meet the recommendations of the Healthy Reference Diet (EAT-HRD) proposed by the EAT-Lancet commission.Setting:Mexico (country).Participants:A nationally representative sample of mexican households.Results:Price reductions were associated with increases in the quantity purchased, ranging from 9·4 to 28·3 % for vegetables, 7·9 to 23·8 % for fruits, 0·8 to 2·5 % for legumes and 6·0 to 18·0 % for fish. Higher reductions in prices would be needed to achieve the EAT-Lancet Commission’s recommendations for food groups with suboptimal consumption in Mexico: a 39·7 % reduction in prices for fruits, 20·0 % for vegetables and 118·7 % for legumes.Conclusions:Our study shows that reductions in prices can lead to increases in purchases of healthier food options. More research is needed to assess the most cost-effective strategy to deliver subsidies using either conditional cash transfers, vouchers or food baskets provided to families or direct subsidies to producers.
Journal Article
Investing Cash Transfers to Raise Long-Term Living Standards
Using data from a randomized experiment, we find that poor rural Mexican households invested part of their cash transfers from the Oportunidades program in productive assets, increasing agricultural income by almost 10 percent after 18 months of benefits. We estimate that for each peso transferred, households consume 74 cents and invest the rest, permanently increasing long-term consumption by about 1.6 cents. Results suggest that cash transfers can achieve long-term increases in consumption through investment in productive activities, thereby permitting beneficiary households to attain higher living standards that are sustained even after transitioning off the program.
Journal Article