Argentina: Selected Issues

This Selected Issues paper describes Argentina’s tax system and highlights reform options to improve its efficiency and equity, taking into account fiscal constraints and federalism. It also quantifies the pervasive effects of some of the most distortionary taxes, underscoring the need for reform. Argentina’s tax system remains complex, highly distortive, and unstable, weighing on growth and competitiveness. The system’s elevated burden and complexity encourage tax avoidance and weaken enforcement by creating overlapping tax bases, fragmented intergovernmental responsibilities, and multiple opportunities for noncompliance. The federal fiscal system has exacerbated distortions and complicated reform efforts. Meanwhile, tax reform efforts have fallen short of expectations given challenges arising from federal-provincial coordination. While recent tax adjustments have been generally positive, a more fundamental reform of the system is still required. A comprehensive tax reform must balance equity and efficiency considerations while strengthening the fiscal anchor. Distortionary taxes continue to restrain growth, exports, and capital market development. The empirical analysis suggests there are sizable gains from reducing distortive taxes.