Table A6: Ratio Top over Bottom Quintile of Effective Tax Rates

||**Baseline**|**Baseline +**|**Baseline + Distri-**|**Probabilistic**|**Robust**|
|---|---|---|---|---|---|
|**Tax policy**|**Assignment**|**VAT on Input**|**butional Savings**|**Assignment**|**Assignment**|
|Uniform rate, only formal taxed|2.06|1.62|1.89|1.76|1.95|
|Food exempt, formal and informal taxed|1.67|1.67|1.54|1.63|1.67|
|Food exempt, only formal taxed|2.36|2.18|2.17|2.11|2.19|

This table shows the progressivity of consumption tax policies, measured as the effective tax rate of the richest household quintile over that of the poorest quintile. The numbers are averages for the 31 countries in the core sample. The rows correspond to the three tax policies considered: (1) a uniform rate on all goods in a context where only formal goods can be taxed, (2) a tax exemption on food in a context where both formal and informal goods can be taxed, and (3) an exemption on food, in a context where only formal goods can be taxed. The columns correspond to the different assumptions on our data. Column (1) corresponds to the central informality assignment of retailers. Column (2) models a 10% pass-through of taxes onto prices in the informal sector, following the share of formal inputs in informal firms in Mexico’s census. Column (3) allows for savings rate, which increases linearly from 0 for the bottom decile to 15% for the top decile, following evidence form consumer finance surveys. Columns (4) and (5) use the alternative assignment of store types to formality, by using either the probability of formality by store type from Mexico’s census, or by assigning specialized stores to the informal sector instead of the formal sector.

Table A7: Percent Change in Gini from Optimal Tax Policy

||**(1)**<br>**Baseline**<br>**Assignment**|**(2)**<br>**Baseline +**<br>**VAT on Input**|**(3)**<br>**Baseline + Distri-**<br>**butional Savings**|**(4)**<br>**Probabilistic**<br>**Assignment**|**(5)**<br>**Robust**<br>**Assignment**|**(6)**<br>**Cross**<br>**Elas**|**(7)**<br>**-variety**<br>**ticity**|
|---|---|---|---|---|---|---|---|
|**Tax policy**|||||| ̃_ε_<sup>_C_ </sup>= 1| ̃_ε_<sup>_C_ </sup>= 2|
|Uniform rate, only formal taxed|-2.30|-2.02|-1.24|-1.71|-1.54|-2.82|-1.95|
|Food rate differentiation, formal & informal taxed|-3.16|-3.16|-0.96|-3.16|-3.16|-3.16|-3.16|
|Food rate differentiation, only formal taxed|-3.26|-3.11|-1.88|-2.42|-2.03|-3.84|-2.85|
|Full rate differentiation, formal & informal taxed (12 goods)|-4.81|-4.81|-2.40|-4.60|-4.81|-4.81|-4.81|
|Full rate differentiation, only formal taxed (12 goods)|-4.19|-4.01|-3.11|-3.22|-2.83|-4.73|-3.82|

This table shows the redistributive impact of different consumption tax policies under different hypothesis, as presented in section 6. Our metric for redistribution is the percent change in Gini from the pre-tax income distribution to the net-of-tax distribution. We take the average across the 31 countries in the core sample. The rows correspond to the tax policy scenarios considered. (1) a uniform rate on all goods in a context where only formal goods can be taxed, (2) optimal tax rates on food and non food goods in a context where both formal and informal goods can be taxed, (3) optimal tax rates on food and non food goods, in a context where only formal goods can be taxed, (4) optimal tax rates for each of the 12 COICOP-2 digit level goods in a context where both formal and informal goods can be taxed, and (5) optimal tax rates for each of the 12 COICOP-2 digit level goods in a context where only formal goods can be taxed. The columns correspond to the different assumptions on our data. The baseline in column (1) corresponds to the central assignment of retailers to informality status, and to a value of the cross-variety elasticity of 1.5. Column (2) adds to the baseline scenario a 10% pass-through of taxes onto prices in the informal sector, following the share of formal inputs in informal firms in Mexico’s census. Column (3) adds the baseline scenario a distributional savings rate which ranges from 0 for the bottom decile to 15% for the top decile, following evidence form consumer finance surveys. Columns (4) and (5) use the alternative assignment of store types to formality. Finally columns (6) and (7) keep the central store assignment to informality but vary the value of the elasticity of substitution between the formal and informal variety of goods.

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