Bank Account Ownership by Microentrepreneurs in Mexico

This paper evaluates the impact of a value-added tax (VAT) rate increase on bank account ownership by Mexican microentrepreneurs considering informality as the main channel of this effect. Using two rounds of a cross-section survey aimed at understanding financial inclusion in Mexico and a difference-in-difference strategy, results indicate that an increase in the VAT rate negatively affects the probability of microentrepreneurs having a bank account in northern municipalities where the tax rate increased from 11% to 16%. In particular, financial inclusion of microentrepreneurs at the northern border decreased to a statistically significant effect, whereas financial inclusion of formal and informal salaried workers at the northern border did not change, as their fiscal obligations remained the same with the VAT amendment.