The author investigates the effects of a marginal tax reform on household welfare in Mexico. He estimates the extent to which Mexican households react to changes in prices, and uses the estimates to simulate changes in social welfare resulting from marginal tax reform. Results indicate that...

Nicita investigates the effects of a marginal tax reform on household welfare in Mexico. He estimates the extent to which Mexican households react to changes in prices, and uses the estimates to simulate changes in social welfare resulting from marginal tax reform. Results indicate that poorer...

Price responses are usually estimated for the average household. However, different households are unlikely to respond in a similar way to movement in prices. Consequently, relying on averages may be misleading when examining the behaviour of a particular group of households such as the poor....