Distributional Effects of Taxation in Latin America

Carola Pessino, Alejandro Rasteletti, Daniel Artana and Nora Lustig

No 13184, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: This chapter analyzes the incidence on income distribution by a comprehensive array of direct and indirect taxes in ten Latin American countries circa 2018. The study finds that although there is a significant heterogeneity, the redistributive impact is equalizing for direct taxes and unequalizing for indirect taxes. Overall, redistribution through taxes, without accounting for spending effects and interactions, is slightly equalizing for some countries and unequalizing for others, but the burden on the poor is high and even higher than on the rich. This is mainly a consequence of the high share of indirect taxes in the tax structures, and of low personal income tax collection and coverage. The inclusion of the redistributive effect of the corporate income tax contributes to improve redistribution and accounts for better comparison with the redistributive impact in more developed countries, where dividends are taxed heavily with personal income taxes rather than corporate income taxes as in Latin America. High levels of evasion and informality make payroll taxes more regressive in integrated labor markets with high informality, but make indirect taxes less regressive, since the poor pay little or no indirect taxes on some of their purchases.

Keywords: taxes; Inequality; Informality; Latin America (search for similar items in EconPapers)
JEL-codes: D31 E26 H22 H26 N36 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-iue and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Distributional effects of taxation in Latin America (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:13184

DOI: 10.18235/0005230

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