Fiscal policy in Latin America: Fiscal
legitimacy and net tax/benefit position
Americas Desk
OECD Development Centre
LAC Fiscal Policy Forum
Panama, September 16th 2010
Fiscal policy in Latin America: Legitimacy and tax-benefit position
Public expenditure on in-kind and cash transfers
(Percentage of GDP, 2005)
Tax collection
(Percentage of GDP, 2008)
Social services (a)
Health services
Education services
Cash transfers (b)
40
40%
35
30%
30
25%
25
20%
20
15%
15
10%
10
5%
5
OECD
LA
Brazil
Chile
Mexico
0
High inequality, low tax collection, and weak fiscal redistribution
Is the social contract broken in Latin America?
2
OECD-31
0%
Mexico
Korea
Chile
Turkey
Ireland
Slovak Rep.
Canada
Australia
United States
Japan
Czech Rep.
Netherlands
Greece
Iceland
New Zealand
Spain
Switzerland
Luxembourg
Poland
Norway
United Kingdom
Hungary
Portugal
Italy
Germany
Finland
Belgium
Austria
Denmark
France
Sweden
35%
Fiscal policy in Latin America: Legitimacy and tax-benefit position
Tax policy cannot be analyzed separately from expenditures
Tax collection affects the amount that can be assigned to public expenditures
Agents may be willing to pay higher taxes if they receive more/better public
services
Two questions were explored
•
•
3
How fiscal policy is perceived by Latin American citizens?
How fiscal policy affects households’ incomes?
Perceptions about fiscal policy
Perceptions about taxation
(2007-2008 round)
"Good Citizens pay their taxes"
(percentage of respondents who
agree)
"Taxes are too high"
(percentage of respondents who
agree)
60
50
55
45
50
40
45
35
40
35
30
30
25
Q1
4
Q2
Q3
Q4
Q5
Q1
Q2
Q3
Q4
Q5
Perceptions about fiscal policy
Satisfaction with public services
(2007-2008 round)
Satisfaction with health services
(percentage of respondents)
Satisfied
Not Satisfied
No Access
100
80
60
40
20
-
Q1
5
Q2
Q3
Q4
Q5
Perceptions about fiscal policy
Taxation for more representation? Empirical approach (I)
•
Latinobarometro surveys, 2007 and 2008 rounds. PROBIT
modelling
•
Dependent variables
Fiscal legitimacy
Do you think that good citizens should pay taxes?
‘Optimal’ level of taxes: Do you think taxes are too high?
Demand for redistribution:
State should intervene in health / education / pension
6
Perceptions about fiscal policy
Taxation for more representation? Empirical approach (and II)
•
Explanatory variables
Education: years of education
(Auto-reported) Social class: five quintiles (middle II-IV)
POUM: Past mobility, and future mobility,
Meritocracy
Success depends on hard work rather than connections, a
poor person in my country can become rich working hard, life
chances are independent of origin
(Perceived) Link tax/benefits
Satisfaction with democracy, health care, education and pensions
7
Perceptions about fiscal policy
Taxation for more representation? Results at a glance
Education
Middle class
Public services
(educ., health)
POUM
Meritocracy
Legitimacy
Tax are too high
More redistribution
+
+/+
+
-/-
+/-
+/+
-
n.a.
All regressions include country, ethnicity, marital status and employment status
Bold: significant at 5 per cent (at least)
8
-/+
-
+
Fiscal policy effects on households’ incomes
Previous
income
distribution
Households
surveys
Utilization of services: 2006 National
Characterization Socio-economic Survey
(CASEN) and 2006-07 Family Budget
Survey (EPF).
2006 Household Income Survey
(ENIGH)
Government
statements
National
Accounts
Health, education and taxes: Data at
institutional level from the Chilean
National Budget Office (DIPRES) and the
Mexican Secretary of Public Finance and
Credit (SHCP)
New income
distribution
Indirect taxes: Estimation of budget
shares on consumption from I-O tables
Tax-benefit incidence analysis rely on different sources of information
and uses imputation techniques to splice them together.
9
Fiscal policy effects on households’ incomes
Cash transfers
Education
Health
Taxes
Chile:
Chile:
Chile:
Chile:
Educational services,
School feeding program,
Health and oral school
programs,
School materials and
textbooks and others.
Health care net benefits,
Supplementary Feeding
Program (PNAC) and
Complementary Food
Program to older people
(PACAM).
Health SSC, Income
taxes, VAT and
Excises.
Chile Solidarity, United
family subsidies (SUF),
Family allowance,
Potable water subsidy,
PASIS assistance
pension and others.
Mexico:
Oportunidades and
Procampo.
10
Mexico:
Educational services and
School scholarships.
Mexico:
Health care net benefits.
Mexico:
Health SSC, Income
taxes, VAT and
Excises.
Fiscal policy effects on households’ incomes
Tax-benefit structure by household income deciles
(Percentage of the decile mean disposable income)
Chile
Mexico
120%
120%
Taxes
Social spending
Taxes
Net transfers
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
-20%
-20%
-40%
-40%
I
11
II
III
IV
V
VI
VII VIII IX
X
I
II
Social spending
III
IV
V
VI
Net transfers
VII VIII IX
X
Fiscal policy effects on households’ incomes
Benefits structure by household income deciles
(Percentage of the decile disposable income, 2006)
Chile
Mexico
120%
120%
Cash transfers
Education
Health
Cash transfers
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
I
II
III
IV
V
VI
VII
VIII
IX
X
I
II
III
IV
Education
V
VI
VII
Health
VIII
IX
X
Education and health are the most important items in improving poor
families’ income
12
Contrasting data and perceptions about fiscal policy
Benefits structure by household income deciles
(Percentage of the decile disposable income, 2006)
Satisfaction with health services
(Percentage of respondents)
22%
Cash transfers
20%
Education
Health
Satisfied
18%
100
16%
90
14%
80
12%
70
No Access
60
10%
50
8%
40
6%
30
4%
20
2%
10
0%
I
13
Not Satisfied
II
III
IV
V
VI
VII
VIII
IX
X
Q1
Q2
Q3
Q4
Q5
Fiscal policy in Latin America: Legitimacy and tax-benefit
position
Conclusions
•
From perceptions in LAC
• Potential demand for an stronger social contact?
• Better services, and in particular better education may trigger a
virtuous circle
•
To the data in Chile and Mexico
• Tax/benefit systems strengthen the middle class
• Education and health are the most important items in improving
poor families’ income
14