Americas Desk OECD Development Centre LAC Fiscal Policy Forum

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Presentation transcript:

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 Tax collection (Percentage of GDP, 2008) Public expenditure on in-kind and cash transfers (Percentage of GDP, 2005) High inequality, low tax collection, and weak fiscal redistribution Is the social contract broken in Latin America?

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 How fiscal policy is perceived by Latin American citizens? How fiscal policy affects households’ incomes? 3

Perceptions about fiscal policy Perceptions about taxation (2007-2008 round) 4

Perceptions about fiscal policy Satisfaction with public services (2007-2008 round) 5

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

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

Perceptions about fiscal policy Taxation for more representation? Results at a glance Legitimacy Tax are too high More redistribution Education + - +/- Middle class +/+ -/- Public services (educ., health) POUM Meritocracy n.a. All regressions include country, ethnicity, marital status and employment status Bold: significant at 5 per cent (at least)

Fiscal policy effects on households’ incomes Utilization of services: 2006 National Characterization Socio-economic Survey (CASEN) and 2006-07 Family Budget Survey (EPF). 2006 Household Income Survey (ENIGH) Previous income distribution Households surveys New income distribution Government statements 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) National Accounts 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.

Fiscal policy effects on households’ incomes Cash transfers Education Health Taxes Chile: Chile Solidarity, United family subsidies (SUF), Family allowance, Potable water subsidy, PASIS assistance pension and others. Mexico: Oportunidades and Procampo. Chile: Educational services, School feeding program, Health and oral school programs, School materials and textbooks and others. Mexico: Educational services and School scholarships. Chile: Health care net benefits, Supplementary Feeding Program (PNAC) and Complementary Food Program to older people (PACAM). Mexico: Health care net benefits. Chile: Health SSC, Income taxes, VAT and Excises. Mexico:

Fiscal policy effects on households’ incomes Tax-benefit structure by household income deciles (Percentage of the decile mean disposable income) Chile Mexico

Fiscal policy effects on households’ incomes Benefits structure by household income deciles (Percentage of the decile disposable income, 2006) Chile Mexico Education and health are the most important items in improving poor families’ income

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)

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

Fiscal policy effects on households’ incomes Mobility indicators (2006) Chile Mexico

Fiscal policy effects on households’ incomes Tax-benefit structure by household income deciles (Percentage of the mean disposable income) Chile Mexico