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Finally, demographic variables are created and the changes in taxable labor income and revenue
are outputted in logfilelabor.
quaids.do
This module allows one to estimate how consumer spending patterns change following tax
changes, and how such changes in spending patterns affect the revenues from the tax changes,
and consumer welfare. It makes use of demand system estimates calculated in
quaids_estimation.do (see Appendix D).
First, the expenditure on each of the 12 demand system goods categories is calculated using the
NUMGOODS categories of the MEXTAX indirect tax simulator. This is done to calculate total
expenditure on goods included in the demand system , which together with prices (read in from
indata_prices) and the coefficients from the demand system (read in from indata_demand), is
used to calculate indirect utility and the estimated shares for each of the 12 demand system
goods categories for each household.
The price effects of tax reforms are then calculated and are used to estimate the shares for each
of the 12 goods categories following the reforms. The expenditure function is then calculated to
calculate the compensating variation (CV) for each reform, which (after adding on the change in
taxes paid on goods which we cannot include in our demand system) is our measure of the
welfare effect of the tax reforms accounting for substitution possibilities. We also calculate the
change in expenditure required to obtain the same level of utility if substitution were not
possible so that we can evaluate the extent to which substitution possibilities ameliorate the
impact of tax changes.
The changes in consumer welfare by decile group and household type are calculated and
outputted in logfiledemand_welfare; the changes in expenditure shares are outputted in
logfiledemand_spending; and the changes in revenues are outputted in logfiledemand_revenue.
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Installation requirements and procedures
LATAX is written in Stata and has been successfully used with versions 10, 11 and 12. A key
requirement for using the program is therefore to have Stata installed (contract your system
administrator or see www.stata.com for information on how to obtain and install Stata if you do
not already have access to it).
With Stata installed, download the LATAX package from the LATAX website. The downloaded
file is a zip file: the do files making up the LATAX program need to be extracted and placed in
folders from they can subsequently be called when using the program. There are two types of do
files: program modules (main_module.do, loadprogs.do, calc_indirtax.do, set_taxbase.do,
calc_dirtax.do, do_household.do, do_distanalysis.do, indirect_incidence.do, labor.do and quaids.do)
and 3 example parameters modules which are used in the worked example in this user manual
and can be used as the basis for your parameters modules (params_2008, params_2010
params_20101). Where the different types of files are placed is, to a large extent, up to you: the
program will work if they are all placed in one folder, or the program files and parameters files
are placed in separate folders. However, it is recommended, initially, to use the following
convention:

Create a folder called “LATAX”
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