Governance, taxes, and tax reform in Latin America

Abstract

In the 1980s, Latin American countries began to implement a set of tax reforms inspired in large part by
\nthe international financial institutions and ideas associated with the Washington Consensus. These reforms
\ninvolved above all the simplification of tax structures and the removal of exemptions and special
\nprivileges; the replacement of trade taxes by value-added taxes; and an emphasis on improved tax
\nadministration. Although not fully implemented, these reforms have generally been useful. However, they
\nhave come at a price: other issues have been driven and kept off the tax policy agenda. The excluded
\nissues include considerations of equity and redistribution; and a serious concern for governance questions
\n– the interactions between tax policy and the legitimacy of governments and the policies they pursue. In a
\nrather quieter way, many Latin American governments recently have initiated a series of “indigenous” tax
\nreforms. These owe little to the support or urging of international financial institutions, are designed to
\ndeal with particular local problems, begin to address some of the more important political dimensions of
\ntax reform, and have been modestly successful. These indigenous reforms provide a basis on which Latin
\nAmerican countries could build a more wide-ranging programme of tax reform tailored to regional and
\nnational circumstances. Such a programme could and should focus more on the political and governance
\ndimensions of taxation and attempt to build something resembling national “social contracts” around
\nissues of public revenue and expenditure.