Inequality and taxation in Latin America Revisiting Bruno Martorano

Ruth Myrtho Casséus Université Quisqueya, Centre de Recherche en Gestion et Economie du Développement (CREGED), 218 Avenue Jean Paul II, Port-au-Prince, Haïti

Inequality and taxation are issues of interest to Latin America, where the key issue is to achieve a significant reduction in inequality through sound tax policies. Martorano (2016, 2018) proposes to analyze the impact of the tax measures taken from the 1990s on income inequality observed in the Latin American region, considering that with a good tax system enlightened by needs, it should be possible to reduce inequalities in the countries of the region. In the first paper, Martorano and all (2016) analyze the reform actions undertaken by these countries in their taxation system in order to curb the negative impact on their economies of the measures stemming from the recommendations of the Washington Consensus. They support their views on the results achieved in terms of positive tax impact and tax redistribution via social programs measurable by the Reynolds-Smolensky index (RS). The Tax / GDP ratio has stabilized in an average of 15 to 16% for the Region; the Gini coefficient of the household income distribution improved by an average of 0.4 - 0.8 points. Nevertheless, the authors acknowledge that the yields of the regional tax system are mixed or even weak in several countries in the region, particularly in Central America. The main causes are structural and relate mainly to low tax revenues and tax evasion. The authors thus touch on a thorny problem common to the Region: paradoxically, in appearance, it makes up two sides of the same reality: poverty / concentration of wealth, lack of fiscal gain / excess liquidity. In Haiti, for example, when the first fiscal measures were implemented on the recommendations of the International Monetary Fund in 1983, it is said that Haitian investments abroad rose from 140 million to 220 million US dollars, and that occurs while public spending falls from 881 to 331 million gourdes and did not allow to honor the Haitian counterpart in this adjustment program (Cadet, 1996: 48). Estimated at $ 340,000 million, tax evasion in Latin America is a main problem that accounts for 6.7% of GDP, respectively from the value added tax (2.4%) and the tax on income (4.3%) (Cepal, 2016: 1). In the second paper, Martonaro (2018) continues the redistributive role of taxation in Latin America over the period 1990-2015, seeking to refine the analysis of the specific contribution of direct and indirect taxes and the impact on the evolution of the income distribution. The methodological soundness of the analysis is based on a choice of measuring instruments, on the range of information collected from 18 countries, on sub regional scales established according to their fiscal responsiveness (large economies, intermediate), time scales (1990 and after 2000), coupled variables (GDP per capita, debt / GDP, etc.). The results are nuanced but confirm the ability of taxation to influence the evolution of inequality in Latin America, by its progressiveness and its redistributive nature, provided that regional secular limitations are overcome. The Economic Council for Latin America and Caribe (Cepal, 2019: 32) believes that tax evasion is only the tip of the iceberg of the phenomenon of unequal taxation into income structure, distribution of wealth, and physical and financial assets concentration. Thus, in the evolution of the Latin American tax composition that Martorano et all (2016: 2) make over 10 years (1991-2011), it should be noted that land tax and international trade tax have been reduced (by from 4.0 to 3.9 / GDP, from 17.6 to 7.4 / GDP, respectively) while the income, profit and capital tax and sales tax have increased significantly (from 20.7 to 32.6 / GDP; from 37.9 to 44.2 / GDP, respectively).
The slowdown in the regional trend towards the reduction of inequality, was 1.3% annual, from 2002 to 2008 and failed to 0.3% annual from 2014 to 2017 (Cepal, 2016: 32). This is the sign that it would be wise to find a new balance in conducting the economy, keeping in mind that poverty rates already slightly up in some countries (IMF, 2018: 11).

References Cadet, Charles (1996). Crise, paupérisation et marginalisation dans l’Haïti contemporaine. Unicef. Port-au-Prince. Comisión Económica para América Latina y el Caribe (CEPAL), Evasión fiscal en América Latina llega a 340.000 millones de dólares y representa 6,7% del PIB regional: Los principales incumplimientos tributarios se dan en el impuesto sobre la renta. 1 DE SEPTIEMBRE DE 2016|NOTICIA. www.cepal.org Comisión Económica para América Latina y el Caribe (CEPAL), Panorama Fiscal de América Latina y el Caribe, 2019 (LC/PUB.2019/8-P), Santiago, 2019. ISBN: 978-92-1-058655-9. www.cepal.org International Monetary Fund, 2018. Regional Economic Outlook, Western Hemisphere: An Uneven Recovery. World economic and financial surveys. October 2018, ISBN 9781484375365 (paper). ISSC, IDS and UNESCO (2016), World Social Science Report 2016, Challenging Inequalities: Pathways to a Just World, UNESCO Publishing, Paris. – ISBN 978-92-3-100164-2

This post-publication review concern these two Martonaro’s papers: • Juan Carlos Gómez Sabaíni, Bruno Martorano and Dalmiro Morán (2016). Taxation and inequality: lessons from Latin America. In ISSC, IDS and UNESCO (2016), World Social Science Report 2016, Challenging Inequalities: Pathways to a Just World, UNESCO Publishing, Paris. • Martorano Bruno (2018). Taxation and Equality in developing countries: Lessons front the recent experience of Latin America. Journal of International Development J. Int. Dev. 30, 256–273 (2018).Juan Carlos Gómez Sabaíni, Bruno Martorano and Dalmiro Morán (2016). Taxation and inequality: lessons from Latin America. Publish in ISSC, IDS and UNESCO (2016), World Social Science Report 2016, Challenging Inequalities: Pathways to a Just World, UNESCO Publishing, Paris.