By O. Sanchez
Why perform a little international locations “learn to tax” and others do not? Why does tax reform consolidate in a few international locations and never in others? the significance of those queries for the constructing global and for Latin the USA can't be exaggerated. This booklet tracks the evolution of tax coverage in Chile and Argentina in order to make clear those questions, supplying a distinct window into the character of tax policymaking in Latin America. In the method, broader insights are won into the bigger query approximately why Chile has turn into the “tiger” economic climate of the area whereas Argentina has been this kind of chronic financial underachiever.
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Relentless and ominous, the drumbeat echoes around the land: Social safety is at the verge of financial ruin. The caution has been repeated so frequently that it has develop into a gloomy article of religion for the hundreds of thousands of american citizens who pay Social protection taxes and anticipate to assemble merits sometime. however it is flatly unfaithful.
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All of these measures were to come into operation as soon as the tax reform was approved. From a narrower technical viewpoint, the reform had three objectives: income redistribution, tax administration rationalization, and revenue enhancement. Tax Reform Content The government aimed to collect an additional $600 million or about 2 percent of GDP to finance its announced social programs. The bill sent to Congress increased the rates of the two highest-yielding taxes in Chile: the VAT from 16 to 18 percent and the corporate income tax from 10 to 15 percent.
We stand ready to approve that expenditure as long as they grant us the sources of additional income for the task. (El Mercurio, September 19, 1991) In short, the Concertación was making crystal clear its commitment to fiscal responsibility and the accompanying tax-and-spend model, and proved impervious to political pressure to modify that model in any way. This commitment extended to corporatist actors, including such unsuspecting defenders of fiscal rectitude as the country’s largest labor union, the Central Unitaria de Trabajadores.
It must be noted that the política de acuerdos approach was also followed within the seventeen-party ruling alliance itself. Predictably, there was no consensus within the broad coalition about proposed tax changes. In particular, the Socialist party and sectors of the leftist Partido por la Democracia (PPD) opposed the increase in the VAT on grounds that it was a regressive reform insofar as it diminished the purchasing power of the poor and the middle class. To understand why policy differences within the coalition did not escalate, two factors must be borne in mind.