Publication: Rethinking Taxation for Growth in Latin America and the Caribbean: Objectives, Behavioral Responses, and Technological Advances
Loading...
Files in English
294 downloads
Published
2025-09-17
ISSN
Date
2025-09-17
Author(s)
Editor(s)
Abstract
“Rethinking Taxation for Growth in Latin America and the Caribbean: Objectives, Behavioral Responses, and Technological Advances” argues for a shift beyond the traditional focus on collection efficiency and equity to explicitly include economic growth as a primary objective. It highlights how taxpayers’ behavioral responses and technological advancements reshape the effectiveness and trade-offs of core taxes.
The report introduces targeted cash transfers (TCTs) as a powerful new instrument for achieving equity, potentially allowing for more neutral and efficient revenue collection through other taxes like value added tax (VAT). It challenges the conventional view of VAT as inherently regressive in the region’s informal economies, suggesting that consumption-based analysis reveals a less clear-cut picture. The report cautions against excessively high standard VAT rates, which can hinder growth, and suggests reevaluating reduced VAT rates in favor of broader base consumption taxes coupled with TCTs.
The report argues that the high corporate income tax (CIT) rates in the Latin America and the Caribbean region, coupled with a challenging business environment, incentivize evasion and discourage investment. It advocates for reducing CIT rates to align with other emerging markets, improving enforcement, and exploring public-private partnerships for tax collection.
Regarding the personal income tax (PIT), the report notes a narrow base despite high top marginal rates, which may penalize entrepreneurship. It suggests moderately broadening the tax base rather than further increasing top rates. It also proposes focusing on property taxes as a more viable form of wealth taxation, given the prevalence of tangible assets and the increasing feasibility of accurate valuation through technology, contrasting this with the difficulties of taxing highly mobile financial assets.
With recommendations for strategic adjustments to VAT and CIT rates, a moderate expansion of the PIT base, and more effective property tax policy, this report provides policy makers, business leaders, and researchers with a practical framework for building more effective, equitable, and growth-oriented tax systems in Latin America and the Caribbean. The analysis is grounded in context-specific insights, encouraging a nuanced approach that considers both behavioral responses and technological progress.
Link to Data Set
Citation
“Vuletin, Guillermo. 2025. Rethinking Taxation for Growth in Latin America and the Caribbean: Objectives, Behavioral Responses, and Technological Advances. © World Bank. http://hdl.handle.net/10986/43647 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Latin America and the Caribbean Economic Review, October 2024: Taxing Wealth for Equity and Growth(Washington, DC: World Bank, 2024-10-09)The report highlights the progress made on inflation and, despite some resistance in the last mile, the resulting fall in interest rates that will ease pressures on debt service and investment. However, growth is projected to remain low, debt remains high, private and public investment is depressed, and the region appears to be missing the boat on nearshoring FDI. The need to generate more fiscal space, reduce the high corporate tax burden, and mitigate persistent inequality have moved wealth taxes to center stage. But traditional wealth taxes on financial assets face challenges due to the ease of moving and hiding assets which will be difficult to control without elusive global coordination. A viable alternative is a tax on real estate which is less mobile, easier to track, and less of a distortionary burden on economic activity, given the low initial rates. Property taxes also have the potential to reduce the excessive dependence of subnational governments on federal transfers. For property taxes to play a greater role, there must be improvements in property valuation which can be engineered through the use of digital platforms and centralized land registries.Publication Inequality in Latin America : Breaking with History?(Washington, DC: World Bank, 2004)With the exception of Sub-Saharan Africa, Latin America and the Caribbean has been one of the regions of the world with the greatest inequality. This report explores why the region suffers from such persistent inequality, identifies how it hampers development, and suggests ways to achieve greater equity in the distribution of wealth, incomes and opportunities. The study draws on data from 20 countries based on household surveys covering 3.6 million people, and reviews extensive economic, sociological and political science studies on inequality in Latin America. To address the deep historical roots of inequality in Latin America, and the powerful contemporary economic, political and social mechanisms that sustain it, Inequality in Latin America and the Caribbean outlines four broad areas for action by governments and civil society groups to break this destructive pattern: 1) Build more open political and social institutions, that allow the poor and historically subordinate groups to gain a greater share of agency, voice and power in society. 2) Ensure that economic institutions and policies seek greater equity, through sound macroeconomic management and equitable, efficient crisis resolution institutions, that avoid the large regressive redistributions that occur during crises, and that allow for saving in good times to enhance access by the poor to social safety nets in bad times. 3) Increase access by the poor to high-quality public services, especially education, health, water and electricity, as well as access to farmland and the rural services. Protect and enforce the property rights of the urban poor. 4) Reform income transfer programs so that they reach the poorest families.Publication Fiscal Redistribution and Income Inequality in Latin America(World Bank, Washington, DC, 2008-01)Income inequality in Latin America ranks among the highest in the world. It can be traced back to the unequal distribution of assets (especially land and education) in the region. But the extent to which asset inequality translates into income inequality depends on the redistributive capacity of the state. This paper documents the performance of Latin American fiscal systems from the perspective of income redistribution using newly-available information on the incidence of taxes and transfers across the region. The findings indicate that: (i) the differences in income inequality before taxes and transfers between Latin America and Western Europe are much more modest than those after taxes and transfers; (ii) the key reason is that, in contrast with industrial countries, in most Latin American countries the fiscal system is of little help in reducing income inequality; and (iii) in countries where fiscal redistribution is significant, it is achieved mostly through transfers rather than taxes. These facts stress the need for fiscal reforms across the region to further the goal of social equity. However, different countries need to place different relative emphasis on raising tax collection, restructuring the tax system, and improving the targeting of expenditures.Publication High Food Prices, Latin American and the Caribbean Responses to a New Normal(Washington, DC, 2014-01)Yet the current situation differs from 2007-2008 in critical respects. First, recent international price increases are more widespread across agricultural commodities than in 2008, when price spikes were led by few grains such as wheat and rice. Second, natural resources are affecting food production: land and water constraints are more binding than in the past and weather induced production shortfalls are more of a factor now than it was 2008. Climate change also adds to this uncertainty, particularly since a larger share of grain exports are being produced in areas more exposed to climate variability. Third, long term structural changes in the markets are more clearly a major factor this time, as demand for feed and income-elastic foods under sustained and widespread income growth in emerging countries is increasing steadily. Fourth, the global stocks/use ratio for major cereals, which used to hover in the range of 30-35 percent in the 1980s and 1990s, has been around 20 percent after 2003 due largely to long-term policy changes in high-income countries; and stocks of some critical players are now at all-time lows. Global markets are currently experiencing the second sharp spike in food prices in the last four years. While no one has a crystal ball to predict with confidence the future prices of food products, there are good reasons to believe that structural factors affecting both supply and demand, discussed in this report, have recently evolved in ways that will increase the average levels and volatility of prices above those of recent decades. Ensuring that the world's populations, and particularly vulnerable groups, are adequately fed is one of the most important contributions of the World Bank to the global public good's agenda. This report describes how the current situation is affecting countries in the Latin America and Caribbean region, including the impact on different groups within countries, and proposes strategies to best assist our client countries in responding.Publication Latin America and the Caribbean Economic Review, October 2025: Transformational Entrepreneurship for Jobs and Growth(Washington, DC: World Bank, 2025-10-07)Latin America and the Caribbean faces a challenging outlook: slow economic and job growth, lower commodity prices, sluggish decline in global interest rates reducing demand and complicating debt service, weak investment, stalled nearshoring, and tight fiscal space. Structural gaps in infrastructure, education, regulation, competition, and tax policy curb technology adoption and quality job creation. The report highlights an entrepreneurship puzzle that despite high measured entrepreneurial spirit, status and activity in the region, growth remains low. This is due to a mass of informal micro firms with little intent to scale coexisting with a shallow pool of transformational firms. Education and STEM shortfalls shrink the pipeline; management quality, registered startups, and tecnolatinas lag peers. Two binding constraints—shallow financial markets and scarce skilled workers—impede scaling. Possible policy responses include strengthening human capital through improved education and targeted training, expanding access to finance by deepening capital markets and enhancing creditor protections, fostering competitive markets and innovation incentives, and modernizing labor regulations to reduce hiring costs.
Users also downloaded
Showing related downloaded files
Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.Publication Port Reform Toolkit(Washington, DC: World Bank, 2025-07-31)Ports are undergoing constant transformation, induced by changes in the global economy, technology, or the environment. Port reform is influenced by factors that include aspirations for change underpinned by complex internal and external drivers. In a sector where public and private interests must work together, closely managing change is important. Having the right tools is key for a successful port reform and improvement process which enables economic growth, creates jobs, and fosters sustainable development. For over two decades, the Port Reform Toolkit has been one of the most comprehensive guides for implementing port reforms. Along the way, the Toolkit has evolved in response to changing sectoral trends. The first edition, published in 2001, established a common language for policymakers and port industry stakeholders. It has since become the established reference for port privatization, labor, and modernization programs. Further experiences from a first wave of port reforms in Latin America, Africa, and Asia in the 1990s and early 2000s informed the second edition of the Toolkit, which was released in 2007. By that time, ports in developing economies had attracted over 21 billion dollars in investments from over 200 public-private partnership projects. In this context, the Port Reform Toolkit enabled port stakeholders to provide strategic advice to governments and the private sector.Publication Panama Poverty and Equity Assessment 2024(Washington, DC: World Bank, 2025-02-12)Panama has been one of the fastest-growing countries in the region, with rapid economic expansion accompanied by significant poverty reduction. Driven by public and private investment as well as labor accumulation, the Panamanian economy grew by an annual average of 5.7 percent between 1990 and 2023, much higher than the regional average of 2.5 percent. This growth contributed to a significant reduction in poverty. Using the poverty line of US$6.85 per day per capita (2017 PPP), the share of Panamanians affected by poverty improved from one in two in 1989 to only one in ten lived in 2023. Nevertheless, Panama remains one of the most unequal countries in the world. While poverty in urban areas was 4.8 percent in 2023, poverty in indigenous regions (comarcas) reached 76 percent—15 times higher. Limited progress in reducing inequality, as measured by the Gini coefficient, contrasts with Panama’s achievements in other areas. Globally, Panama ranked 11th in inequality in 2000, with a Gini coefficient of 53.8. Two decades later, it ranked 8th, with a Gini coefficient of 50.9 as of 2022. This report examines Panama’s achievements and challenges in reducing poverty and inequality to inform policy options. With a special focus on the 2008–2023 period the report documents progress in poverty and equity in recent decades, highlighting access to basic services, expansion of quality jobs, improvement of human capital, and promotion of household resilience as critical policy priorities.Publication Drones for Development(Washington, DC: World Bank, 2025-03-03)In 2021-23, the World Bank conducted regional analytical work under the Support for Unmanned Aircraft Systems (Drones) in Projects and Operations in Latin America and the Caribbean (LAC) Advisory Services and Analytics. The work involved in-depth analysis of the development of unmanned aircraft systems (UAS) in 35 countries across LAC, identified key use cases, and provided a map of key domestic market players. UAS can be defined as aircraft designed to operate autonomously, or aircraft piloted remotely without a human on board, plus the equipment necessary for their safe and efficient operation. This comprehensive definition embraces all aspects of such systems. In popular usage, UAS are often referred to as drones. This is an imprecise term that focuses on the remotely piloted vehicle without including the flying systems behind it. Given the widespread acceptance and use of the term, however, drones may be used synonymously with unmanned aircraft systems in this report. Innovation in the UAS sector has resulted in a wide variety of models as new applications are developed. Drones are designed for specific purposes and have different capabilities in terms of range, speed, hovering capability, and load-carrying capacity. Sizes and shapes range from tiny drones used for photography, to big cargo drones able to transport loads weighing dozens of kilos. Costs range from a few hundred dollars for small units to several million dollars for systems requiring infrastructure for operation or for systems equipped with high-tech on-board technology. This variety allows for a wide span of uses that, beyond today’s widespread recreational use, can provide new technical solutions for many professional applications in the civil domain. This report intends to give an overview of the stage of UAS development in the region and serve as a guiding document for public sector decision-makers willing to explore the use of this technology.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.