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Taxes and Productivity: A Game of Hide and Seek

In: The Age of Productivity

Author

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  • Carmen Pagés

    (Inter-American Development Bank)

Abstract

High taxes—and high tax evasion—characterize business taxes in Latin America: a fact that is often considered part of a natural state of affairs. This chapter will argue that the combination of high taxes and widespread evasion has adverse consequences for productivity. High evasion may be a survival strategy for firms that would otherwise fail because of onerous and cumbersome regulations. Yet the combination of high taxes and high evasion distorts the investment decisions of firms, reduces the efficiency of markets, and diverts governments from investing in key public goods—all of which harm the productive possibilities of a society. From this viewpoint, tax evasion is both a consequence and a cause of low productivity and must be addressed directly if productivity is to increase in the region.

Suggested Citation

  • Carmen Pagés, 2010. "Taxes and Productivity: A Game of Hide and Seek," Palgrave Macmillan Books, in: Carmen Pagés (ed.), The Age of Productivity, chapter 7, pages 153-180, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-10761-8_7
    DOI: 10.1057/9780230107618_7
    as

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