Dynamic effect of legal complexity on the value added tax in Mexico

Abstract

This paper studies legal complexity and its dynamic relationship with the Value Added Tax Law, from its original

version published in 1978 to the current version. To this end, the variables structure, entropy, and interdependence of

the legal texts associated with the VAT Law constitute the complexity index. A VAR model then finds evidence of

Granger causality between legal complexity and VAT, although no cointegration relationship exists. Furthermore, an

inverse relationship between the variables is confirmed, quantifying the short-term effect of legal complexity and

comparing it for robustness with the estimation of an ARIMAX and generalized OLS model.