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

  • Bruno Martorano

    ()

    (UNICEF Innocenti Research Centre, Florence)

In 2007, the Uruguayan government implemented a new tax reform which introduced a new progressive labour income tax, a flat capital income tax, and reduced some indirect taxes, with the objective of improving fiscal balance, income distribution and economic growth. This paper presents an evaluation of the impact of such tax reform on equity and efficiency on the basis of data derived from the Encuesta Continua de Hogares (ECH) for the years 2006 and 2009. Using a Difference-in-Differences technique, the paper shows that the new tax system lowered inequality by 2 Gini points without producing any discernible disincentive effect. These results contrast with the conclusions of supply side-economics and suggest that suitably designed reforms of direct taxation can simultaneously achieve the goals of equity and efficiency.

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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_06.rdf.

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Length: 18 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:frz:wpaper:wp2012_06.rdf
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  1. Alberto Alesina & Guido Cozzi & Noemi Mantovan, 2009. "The Evolution of Ideology, Fairness and Redistribution," Working Papers 2009_05, Durham University Business School.
  2. repec:rie:review:v:14:y:2009:i:1:n:8 is not listed on IDEAS
  3. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
  4. 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.
  5. Amarante, Veronica & Vigorito, Andrea, 2011. "Uruguayâ..s Income Inequality and Political Regimes during 1981â..2010," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  6. Wolfgang Buchholz & Wolfgang Peters, 2007. "Equal Sacrifice and Fair Burden Sharing in a Public Goods Economy," CESifo Working Paper Series 1997, CESifo Group Munich.
  7. World Bank, 2008. "Uruguay : Poverty and Social Impact Assessment of the Tax Reform," World Bank Other Operational Studies 7890, The World Bank.
  8. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 109-126.
  9. Cecilia Llambi & Silvia Laens & Marcelo Perera & Mery Ferrando, 2011. "Assessing the Impact of the 2007 Tax Reform on Povert and Inequality in Uruguay," Working Papers PMMA 2011-14, PEP-PMMA.
  10. Calvin Blackwell, 2007. "A Meta-Analysis of Tax Compliance Experiments," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0724, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
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