Taxes and their possible functions
Social acceptance of the tax system and due compliance with the tax obligations are essential. On the other hand, these adequately designed instruments, within the fiscal policy and in interaction with others, are also potentially relevant for promoting economic stability, generating working, investment and productive innovation incentives. They are also appropriate for responding to negative externalities such as pollution and other social harms, improving the distribution of income, forging democratic bonds, among other uses. In sum, they promote the integral and inclusive development of the countries which is so necessary for the Region.
The current complicated situation in Latin America
In recent times, Latin America has been evidencing a very complicated and complex economic and social situation, with high political instability and institutional weakness, due to structural economic problems, high levels of poverty and the strong concentration of revenues, the highest in the world. The Economic Commission for Latin America and the Caribbean (ECLAC) has identified obstacles that prevent social development; among others, embedded poverty (30.2% of the population and 10.2% in extreme poverty in 2017), chronic inequality (which was reduced, with a certain slowdown in the past years), gaps in education, health and access to basic services, lack of investment at the social level and other emerging issues such as climate change, violence, new technologies, etc.
The 2030 Agenda for Sustainable Development (United Nations, 2018) provides a transforming vision toward economic, social and environmental sustainability and a historical opportunity for the eradication of extreme poverty, reduction of inequality in all its dimensions, inclusive economic growth with decent jobs for all, sustainable cities and climate change, among othersand to which the adequate design and implementation of the taxes will undoubtedly contribute.
The features of the Latin American tax systems and their possible improvements
The Prologue of the work published by the Institute of Fiscal Studies (“Tax Systems in Latin America”), prepared by Ignacio Corral Guadaño, director of the School of Public Finance of Spain, reads as follows:
The last Chapter of the book concludes as follows:
The OECD encourages the use of tax policy for developing economic agendas that may promote inclusive growth, in the sense that benefits may be shared in a more equitable manner. It is recommended that in the design and implementation of taxes, consideration be given to its role in inclusive economic growth. The options for designing tax policy should consider:
Lastly, it is worth adding that the following are crucial for achieving an effective inclusive growth:
There are no universal recipes. Some developed countries have worked better with high taxes, while others did so with lower rates. The amount of collection is not the only relevant aspect, but also of the type of taxes, how they are spent and in broad terms, the model of society wherein they are applied. Accordingly, when making recommendations one should not only consider the level of tax pressure or the tax rates in an isolated manner.
In these last decades, the tax burden has increased in the region, approaching the OECD’s mean. Nevertheless, the redistributive effects which taxation produces in those countries have not yet been evidenced in the Region. In addition, the problem is that there has been a greater increase in expenses. In many countries there is room for increasing taxes; in some VAT and individual income tax in the majority, although without disregarding the fact that excessively high rates discourage savings.
Lastly, one of the great challenges is to reduce the evasion levels, which according to ECLAC estimates reached 6,3% of GDP in 2017.
 “Los ocho obstáculos al desarrollo sostenible de América Latina”, 3/10/19: https://news.un.org/es/story/2019/10/1463292
 The digital book may be consulted at: https://www.ief.es/docs/destacados/publicaciones/libros/op/2017_SistemasTributariosAL.pdf
Tax Statistics in Latin America and the Caribbean, prepared by OECD, CIAT, IDB, ECLAC (2019). The countries with less tax pressure are Guatemala (12,6% of GDP), Dominican Republic (13,7%) and Peru (16,1%). At the other extreme there is Cuba (41,7% of GDP), followed by Brazil (32,2% of GDP) and Argentina (31,3%). The experts consider Cuba as a separate case, given the particular characteristics of its economy, which differs from those of the rest of the region.
 “The governments should use the tax systems to promote the inclusive growth agenda”, 20/07/16.
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