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A New Fiscal Pact, Tax Policy Changes and Income Inequality

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Abstract

The paper analyses the changes in tax policy, tax/GDP ratios, tax incidence and income inequality which have taken place in Latin America during the last decade against the background of the changes observed in these variables during the liberal years of the 1980s and 1990s. The paper argues that the recent tax policy changes and a favourable external environment led to an increase of about three points in the regional tax/GDP ratio, that such increase in taxation took place in a slightly or substantially more progressive way than in the past, that the Gini coefficient of the distribution of household income improved on average by 0.4-0.8 points, and that, as a result, redistribution via taxation improved (especially in the Southern Cone) in relation to the 1990s thanks to greater reliance on direct taxes and a reduction in excises. However, in the mid-late 2000s taxation remains unequalizing in about a third of the countries of the region, especially in Central America. The paper concludes by offering recommendations on how the new fiscal pact evolving in the region can be strengthened to improve the redistributive effect of taxation in the years ahead.

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Bibliographic Info

Paper provided by Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa in its series Working Papers - Economics with number wp2012_03.rdf.

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Length: 46 pages
Date of creation: 2012
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Handle: RePEc:frz:wpaper:wp2012_03.rdf

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Keywords: tax policy; tax incidence; income inequality; redistribution; fiscal exchange; Latin America;

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References

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  1. Giovanni Andrea Cornia, 2010. "Income Distribution under Latin America's New Left Regimes," Journal of Human Development and Capabilities, Taylor & Francis Journals, Taylor & Francis Journals, vol. 11(1), pages 85-114.
  2. Aghion, Philippe & Caroli, Eve & Garcia-Penalosa, Cecilia, 1999. "Inequality and economic growth: the perspective of the new growth theories," CEPREMAP Working Papers (Couverture Orange) 9908, CEPREMAP.
  3. Nora Lustig & Carola Pessino & George Gray Molina & Wilson Jimenez & Veronica Paz & Ernesto Yanez & Claudiney Pereira & Sean Higgins & John Scott & Miguel Jaramillo, 2011. "Fiscal Policy and Income Redistribution in Latin America: Challenging the Conventional Wisdom," Working Papers, Tulane University, Department of Economics 1124, Tulane University, Department of Economics.
  4. Laura dos Reis & Paolo Manasse & Ugo Panizza, 2007. "Targeting the Structural Balance," Research Department Publications, Inter-American Development Bank, Research Department 4507, Inter-American Development Bank, Research Department.
  5. Wang, Chen & Caminada, Koen, 2011. "Disentangling income inequality and the redistributive effect of social transfers and taxes in 36 LIS countries," MPRA Paper 32821, University Library of Munich, Germany.
  6. Eduardo Engel & Alexander Galetovic & Claudio Raddatz, 1998. "Taxes and Income Distribution in Chile: Some Unpleasant Redistributive Arithmetic," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 41, Centro de Economía Aplicada, Universidad de Chile.
  7. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  8. Giovanni Andrea Cornia, 2005. "Policy Reform and Income Distribution," Working Papers, United Nations, Department of Economics and Social Affairs 3, United Nations, Department of Economics and Social Affairs.
  9. Karla Breceda & Jamele Rigolini & Jaime Saavedra, 2009. "Latin America and the Social Contract: Patterns of Social Spending and Taxation," Population and Development Review, The Population Council, Inc., The Population Council, Inc., vol. 35(4), pages 721-748.
  10. Eduardo Lora, 2007. "The State of State Reform in Latin America," World Bank Publications, The World Bank, number 6642, October.
  11. Bernardi, Luigi & Fraschini, Angela, 2005. "Tax system and tax reforms in India," POLIS Working Papers, Institute of Public Policy and Public Choice - POLIS 45, Institute of Public Policy and Public Choice - POLIS.
  12. Bernardi, Luigi & Barreix, Alberto & Marenzi, Anna & Profeta, Paola, 2007. "Tax systems and tax reforms in Latin America: country studies," MPRA Paper 5223, University Library of Munich, Germany.
  13. Leonardo Gasparini & Guillermo Cruces & Leopoldo Tornarolli & Mariana Marchionni, 2009. "A Turning Point? Recent Developments on Inequality in Latin America and the Caribbean," CEDLAS, Working Papers, CEDLAS, Universidad Nacional de La Plata 0081, CEDLAS, Universidad Nacional de La Plata.
  14. Rodrigo Cubero & Ivanna Vladkova Hollar, 2010. "Equity and Fiscal Policy," IMF Working Papers 10/112, International Monetary Fund.
  15. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
  16. Christian Daude & Ángel Melguizo, 2010. "Taxation and More Representation?: On Fiscal Policy, Social Mobility and Democracy in Latin America," OECD Development Centre Working Papers 294, OECD Publishing.
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Citations

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Cited by:
  1. Bruno Martorano, 2012. "The Impact of Uruguay’s 2007 Tax Reform on Equity and Efficiency," Working Papers - Economics wp2012_06.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  2. Seguino, Stephanie & Braunstein, Elissa, 2012. "The impact of economic policy and structural change on gender employment inequality in Latin America, 1990-2010," MPRA Paper 43261, University Library of Munich, Germany.
  3. Cornia, Giovanni Andrea, 2012. "Inequality Trends and their Determinants: Latin America over 1990-2011," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  4. Yilmaz Akyüz, 2012. "The Staggering Rise of the South?," Working Papers, Turkish Economic Association 2012/3, Turkish Economic Association.
  5. Giovanni Andrea Cornia, 2012. "Inequality Trends and their Determinants: Latin America over 1990-2010," Working Papers - Economics wp2012_02.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.

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