Payroll Tax Effects on the State of Nuevo León. An Extended Input-Output Price Model

Abstract

The short-term economic effects of the 2013 payroll tax rate (isn) increase, from 2 to 3 percent, in the
state of Nuevo León are estimated. An extended input-output price model is formulated, which is
calibrated from a Nuevo León sam with reference to the year 2012. The model assumes that the
increase in the isn is transmitted immediately and completely to costs and prices (forward-shifted tax).
The model considers nine productive sectors, two labor inputs, one capital input, one external sector,
one sector of the states of the rest of the country, two government levels (state and federal) and one
representative household. The results indicate that the impact on prices is greater for: community,
social and personal services sector; commerce, restaurants and hotels, and agriculture. A reduction
of 321.28 pesos per year in per-family private consumption is also estimated.
Keywords: Payroll tax, input-output model, regional economy
JEL classification: H20, C67 and R15