JUAN PABLO JIMÉNEZ AND ISABEL LÓPEZ AZCÚNAGA The Next Step in Improving Equity: Tax Reform
representing more than 25 percent of GDP. In most
countries of the region, though, national levels remain
below 20 percent of GDP. In extreme cases such as Mexico
and Guatemala, the tax burden dips to about 11 percent.
These differences among countries are not only due
to political legacies, macroeconomic circumstances, past
tax patterns, or recent reforms. They also are rooted in
differences in the origin of other fiscal revenues, such
as the exploitation of nonrenewable resources.
Those revenues, often in countries with a high
level of dependence on the production and trade of
commodities, represent a high proportion of total
revenues. And they often reduce the need for taxing
other sources, such as income or capital gains. For
example, in Bolivia (natural gas), Ecuador (oil), Mexico
(oil), and Venezuela (oil) fiscal revenues from commodities represent over 8 percent of GDP and around 30 percent of total revenues.
But fiscal revenues derived from the exploitation of
natural resources are highly volatile. And dependence
on such resources has made fiscal revenue streams in
Latin America much more bipolar than in other regions.
Tax revenue volatility, measured by the standard deviation, is three times higher in Latin America ( 12. 3) than in
developed countries ( 4. 5). 2 This high volatility reduces
fiscal space and hinders governments from addressing
social expenditure and public investment.
What Is Taxed Matters:
Income versus Sales
The role played by tax policy on income redistri- bution is also limited by a tax structure skewed toward indirect taxes. Taxes such as the VAT are
typically less progressive. Indirect taxes represent a similar share in Latin American ( 9. 6 percent of GDP) and the
OECD and the EU ( 11.0 and 11. 7 percent of GDP, respectively).
However, when comparing direct taxes and social security contributions, differences are enormous. The direct tax burden is more than 10 points higher in OECD
countries ( 14. 7 percent of GDP) and the EU ( 16. 1 percent
of GDP) than in Latin America, where it represents a
meager 5. 4 percent of GDP. [figure 2]
When measuring the impact of tax composition on
income, taxes on corporate income in both Latin America and the OECD raise similar amounts relative to GDP
( 3. 4 percent and 3. 9 percent, respectively).
The difference crops up over taxes on personal income; the OECD collects an average 9. 2 percent of GDP,
while Latin America collects only 1. 5 percent of GDP. In
Latin America the distribution of tax revenue between
corporate and personal income tax is 70/30. In OECD
countries, tax structure is precisely the opposite (30/70).
One salient characteristic of taxes on personal income
in Latin America is their reliance on revenue from wage
labor income. This reliance creates the greatest poten-
FIGURE 2. INTERNATIONAL COMPARISON OF THE LEVEL AND STRUCTURE OF THE TAX BURDEN (Percentage of GDP)
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Indirect tax burden
Social security burden
OECD ( 30) EU ( 15) U. S. Developing
Asia ( 10)
Sub-
Saharan
Africa ( 9)
Latin
America
( 19)
Argentina Brazil Chile Dominican
Republic
El
Salvador
Guatemala Mexico Peru Uruguay
34. 7
9.0
11.0
14. 7
39.0
11. 2
11. 7
16. 1
26.0 6. 5 4. 6 14. 9
12. 5 0.1 9. 1 3. 3
24. 5 1. 7 16.0 6. 8
18. 3 3. 3 9. 6 5. 4
34. 7
7. 4
18. 1
9. 2
32. 8
8. 9
14. 1
9. 8
19. 3 1. 4
10. 4
7. 5
13. 2
0.1
9.0
4. 1
14. 6
1. 7
8. 2
4. 7
10. 8
0.3
7. 3
3. 2
11. 1
1. 6
4. 1
5. 4
16. 5
1. 8
8. 1
6. 6
24. 6
7. 2
11. 2
6. 2
14. 5
1.0
7. 9
5. 6
Venezuela
SOURCE: ECLAC, OECD AND IMF
Directtaxburden
AMERICASQUARTERLY.ORG
139 Americas Quarterly SPRING 2012
