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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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  • Giovanni Andrea Cornia & Juan Carlos Gómez-Sabaini & Bruno Martorano, 2012. "A New Fiscal Pact, Tax Policy Changes and Income Inequality," Working Papers - Economics wp2012_03.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  • Handle: RePEc:frz:wpaper:wp2012_03.rdf
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    Citations

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    Cited by:

    1. Giovanni Andrea Cornia, 2012. "Inequality Trends and their Determinants: Latin America over 1990-2010," WIDER Working Paper Series wp-2012-009, World Institute for Development Economic Research (UNU-WIDER).
    2. Bruno Martorano, 2014. "The Impact of Uruguay's 2007 Tax Reform on Equity and Efficiency," Development Policy Review, Overseas Development Institute, vol. 32(6), pages 701-714, November.
    3. repec:unu:wpaper:wp2012-09 is not listed on IDEAS
    4. Bruno Martorano, & Giovanni Andrea Cornia & Frances Stewart, 2012. "Human Development and Fiscal Policy: Comparing the Crises of 1982-85 and 2008-11," Working Papers - Economics wp2012_23.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    5. Richard M. Bird & Eric M. Zolt, 2014. "Taxation and inequality in the Americas: Changing the fiscal contract?," Chapters, in: Richard M. Bird & Jorge Martinez-Vazquez (ed.), Taxation and Development: The Weakest Link?, chapter 7, pages 193-237, Edward Elgar Publishing.
    6. Yilmaz Akyüz, 2012. "The Staggering Rise of the South?," Working Papers 2012/3, Turkish Economic Association.
    7. Bird, Richard M. & Zolt, Eric M., 2015. "Fiscal Contracting in Latin America," World Development, Elsevier, vol. 67(C), pages 323-335.

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    More about this item

    Keywords

    tax policy; tax incidence; income inequality; redistribution; fiscal exchange; Latin America;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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