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The Impact of Uruguay's 2007 Tax Reform on Equity and Efficiency


  • Bruno Martorano


type="main"> In 2007, the Uruguayan government implemented a tax reform which introduced a new progressive labour income tax and a flat capital income tax, and reduced some indirect taxes, with the objective of improving fiscal balance, income distribution and economic growth. This article evaluates the impact of such tax reform on equity and efficiency on the basis of data derived from the Encuesta Continua de Hogares (ECH) for 2006 and 2009. Using a Difference-in-Differences technique, it shows that the new system reduced inequality by 2 Gini points without producing any discernible disincentive effect, suggesting that suitably designed reforms of direct taxation can simultaneously promote equity and efficiency.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:devpol:v:32:y:2014:i:6:p:701-714

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    References listed on IDEAS

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    Cited by:

    1. Bruno Martorano, 2016. "Taxation and inequality in developing countries: Lessons from the recent experience of Latin America," WIDER Working Paper Series 098, World Institute for Development Economic Research (UNU-WIDER).
    2. Buendía García, Luis & Sanabria Martín, Antonio, 2013. "Productive Structure, Political Cycle And Inequality: The Case Of Uruguay, 2004-2011," Revista Galega de Economía, University of Santiago de Compostela. Faculty of Economics and Business., vol. 22(ex).
    3. Bruno Martorano, 2016. "Taxation and inequality in developing countries: Lessons from the recent experience of Latin America," WIDER Working Paper Series 098, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation


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