Book Chapter
Empirical challenges comparing inequality across countries

This chapter focuses on income inequality in Mexico, which increased between 1989–94. Between 1994–2006, inequality declined; and between 2006–14, inequality was again on the rise.

The authors apply decomposition techniques to analyse the proximate determinants of labour income inequality and fiscal incidence analysis to estimate the first-order effects of taxes and social spending on the distribution of income.

The key component that underlies the ‘rise-decline-rise again’ pattern was the evolution of returns to skills. In addition, while changes in fiscal policy in the 1990s were progressive and pro-poor, the redistributive effect has declined significantly since 2010, as transfers have become less progressive and net indirect taxes have increased.