The Next Step in Improving Equity: Tax Reform JUAN PABLO JIMÉNEZ AND ISABEL LÓPEZ AZCÚNAGA
tial for evasion by the self-employed, and often gives
preferential treatment to other forms of non-wage personal income, such as capital gains.
To increase the redistributive capacity of tax policy, it
seems reasonable to focus on making personal income
taxes more progressive, applying them across different
levels and types of income. This is no easy task. There
are concerns about the political economy of tackling
such reforms (related to the varying degrees of per capita
income and income concentration in individual countries) and the historic “allergy” to personal income taxes .
But there are three additional concerns: (i) low, reduced marginal rates that already exist in most countries make it more difficult to bump them up; (ii) unequal
distribution of income and high levels of deductions
and exemptions that are already written into tax codes
create a narrow tax base; and (iii) higher rates of noncompliance (evasion and arrears) complicate collection.
From 1980 to the present, income tax rates—both
personal and corporate—have suffered a major decline.
The average maximum rates of personal income tax
in the region dropped from 49. 5 percent in 1980 to 28. 2
today. Tax rates on corporate income decreased by 38
percent over the same period of time. The inverse has
happened with VAT, which grew by 33 percent, making
it increasingly the main driver for tax collection and
revenue in the region. Although negative, the low rates
of personal income tax create greater room for increas-
ing personal income taxes in the region.
FIGURE 3. PERSONAL INCOME TAX AS A PERCENTAGE OF PER CAPITA GDP IN 2009
(Numbers indicate tax rate at maximum and minimum)
SOURCE: GÓMEZ SABAÍNI, J.C., J.P. JIMÉNEZ AND D. ROSSIGNOLO (2011), “IMPOSICIÓN A LA RENTA PERSONAL Y EQUIDAD EN
AMÉRICA LATINA: NUEVOS DESAFÍOS”, REPORT PREPARED FOR THE CONFERENCE “INTERNATIONAL TAX DIALOGUE GLOBAL
CONFERENCE ON TAX AND INEQUALITY”, NEWDELHI, INDIA, 7-9 DECEMBER 2011
27. 1
10. 6
35.0
27. 5
7. 5
40.0
5.0
29.0
9.0
39. 9
16. 7
32.0
12. 5
20.00
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
Maximum Taxable Income
Minimum Taxable Income
Latin
America
( 18)
ChileEast Asia and
Pacific ( 32)
Western
Europe
( 20)
United States
and Canada
( 2)
30.0
34.0
25.0
25.0
9.0
Argentina Brazil
25.0 15.0
10.0
Dominican
Republic
El Salvador
6.0
28.0 3.0
Mexico
15.0
Peru
10.0
Uruguay
Venezuela
140 Americas Quarterly SPRING 2012
AMERICASQUARTERLY.ORG
