Not Just Taxes: Revenue, Economic Growth and Inequality in the Caribbean

This book explains why in the effective tax burden is generally low in many Caribbean countries despite their high statutory tax rates. The narrow tax bases are due to a complex system of tax expenditures (exemptions, incentives, deductions, preferential rates, tax holidays, allowances, and discretionary waivers, etc.) and the presence of a large informal sector, which in turn contribute to low economic growth and income inequality. Reform implies enlarging the tax base by reducing tax expenditures, including the informal sector, changing statutory rates, and strengthening tax administrations and customs. The book places heavy emphasis on the pernicious effects of tax expenditures a common feature of tax policy throughout the region that degrades the horizontal and vertical equity of the tax system, erodes the tax base, adds complexity, and decreases transparency, making tax administration more difficult. Therefore, one of the most important messages of this book is the need to carry out a process of rationalization of the use of tax expenditures, considering their combined and simultaneous effects in all sectors. This is central to any tax reform process in the region, which should also include measures to broaden the tax base, reduce statutory rates and tariffs, and strengthen tax administration.