While much of the economic news from Latin America, especially South America, is very good—high levels of growth, strong demand for Latin American exports, high commodity prices, increased state capacity across a range of critical areas, the region continues to suffer from high levels of poverty, social exclusion, and inequality. There is a growing consensus, not only among scholars, but in international development and financial institutions such as the UNDP, the World Bank, CEPAL, the IDB, etc., that the region’s historically low levels of taxation on personal income and wealth, along with regressive forms of taxation and spending, impede sustainable reductions in Latin America’s disproportionately high levels of poverty and inequality.

For example, in the region, taxes on goods and services represent close to 40 percent of total tax revenue.  In OECD countries, indirect taxes make up only about 20 percent of total tax revenue.

Unlike income and property taxes that are inherently progressive, the value-added tax (VAT)--the cornerstone of most tax systems in Latin America--is regressive.

Moreover, individual income taxes bring in only 33 percent of tax revenue in Latin America.  In OECD countries, 75 percent of tax revenue comes from individual income taxes.  Rates of tax evasion also magnify the inequalities in tax structure: while evasion of VAT taxes is limited, evasion of income and property taxes is widespread throughout the region.

This conference, a collaboration between the Latin American Program and the Universidad de San Andrés, was the beginning of an effort to help foster public debate and generate research on the issue of taxation and inequality.  We aim to make taxation a more salient issue among the public, and also to brainstorm about concrete ways to mitigate the adverse effects of indirect taxation on the poor and reverse the high rates of tax evasion among the wealthy.  Short of a broad, legislatively-based tax reform, we aim to explore whether there are smaller steps that can be adopted to remedy inequalities in taxation, and to better understand the political obstacles to tax reform.