Distributional effects of taxation in Latin America

Pessino, Carola, Rasteletti, Alejandro, Artana, Daniel and Lustig, Nora (2023) Distributional effects of taxation in Latin America. III Working Papers (118). International Inequalities Institute, London School of Economics and Political Science, London, UK.

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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.

Item Type:	Monograph (Working Paper)
Official URL:	https://www.lse.ac.uk/International-Inequalities/P...
Additional Information:	© 2023 The Author(s)
Divisions:	International Inequalities Institute
Subjects:	H Social Sciences > HJ Public Finance H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions
JEL classification:	D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E26 - Informal Economy; Underground Economy H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H22 - Incidence H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion N - Economic History > N3 - Labor and Consumers, Demography, Education, Health, Income, and Wealth > N36 - Economic History: Labor and Consumers, Demography, Education, Health, Income and Wealth: Latin America; Caribbean
Date Deposited:	09 Nov 2023 14:18
Last Modified:	14 Sep 2024 04:39
URI:	http://eprints.lse.ac.uk/id/eprint/120697

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