Rethinking taxation in LAC
Governments tax to fund public services, traditionally balancing collection efficiency and equity. However, in Latin America and the Caribbean (LAC), this report expands the debate by incorporating taxpayer behavioral responses, technological advancements, and the critical goal of economic growth – an area where LAC consistently underperforms. Core taxes like VAT, PIT, CIT, and Wealth Tax form the bulk of government revenue. While LAC heavily relies on VAT and CIT, weak enforcement and large informal sectors often force a trade-off between revenue and equity. This report challenges conventional views: Targeted Cash Transfers (TCTs) emerge as a powerful tool for equity, potentially allowing for more revenue-focused tax policies. The VAT's perceived regressivity is questioned, suggesting opportunities to broaden its base and reduce high standard rates to foster growth. CIT rates in LAC are often too high, driving capital flight; competitive rates and better enforcement are crucial. PIT, with high top rates and a narrow base, would benefit from broader participation to boost revenue and minimize disincentives for entrepreneurship. Finally, property taxes – tangible and immobile – are identified as an underutilized, practical alternative to highly mobile and difficult-to-tax financial assets. Ultimately, LAC needs a nuanced approach: leveraging VAT's broad base, strategically expanding PIT, implementing intelligent property taxation, fostering corporate dynamism, and deploying TCTs to achieve a more effective, equitable, and growth-enhancing tax system.
Guillermo Vuletin is a Senior Economist at the Office of the Chief Economist for Latin America and the Caribbean of the World Bank. He is also an Associate Editor of Economia, Journal of the Latin American and Caribbean Economic Association (LACEA). He received a PhD in Economics from the University of Maryland and an undergraduate degree and a MA in Economics from the Universidad Nacional de La Plata, Argentina. Prior to joining the World Bank, he was a Lead Economist at the Research Department of the Inter-American Development Bank. His research focuses on fiscal and monetary policies with a particular interest in macroeconomic policy in emerging and developing countries. His work has been published in the Journal of Monetary Economics, Journal of International Economics, American Economic Journal: Economic Policy, and Journal of Development Economics, as well as in other journals. His research has been featured in prominent media outlets, such as The Economist, The Wall Street Journal, The Financial Times, and The Washington Post, and other international and regional newspapers.
Doctor en Economía, University of California at Berkeley. Director de la Licenciatura en Artes Liberales y Ciencias, un bachillerato universitario (BA). Fue presidente de la Asociación Argentina de Economía Política y editor en jefe del Journal of Applied Economics. Publicó en Ensayos Económicos, Económica, Journal of Development Economics, Estudios de Economía, Journal of International Economics, Journal of Public Economic Theory, Public Choice, Kyklos, Economics & Politics, Economía LACEA Journal y History of Economic Ideas, entre otras revistas académicas. Trabaja en un libro sobre el BA para flexibilizar la educación universitaria en Iberoamérica. Ciclista urbano y corredor.