Fiscal Redistribution in Latin America
On September 25, 2024, the Georgetown Americas Institute held a panel discussion on the impact of fiscal policy on income redistribution in Latin America, examining taxation and expenditure policies that are improving poverty and inequality in the region. Panelists included Nora Lustig, founder of the Commitment to Equity Institute (CEQ); Miguel Jaramillo, senior researcher at the Group for Analysis of Development (GRADE); and Claudiney Pereira, professor in the Department of Economics at Arizona State University.
Lustig presented evidence that showed varied results across Latin America regarding the relationship between government revenue and social spending. Among countries in the region, Argentina has been more successful at reducing poverty through fiscal operations, while El Salvador ranks on the lower end. Lustig explained that direct taxes and direct transfers prove to be the more effective fiscal tools at reducing inequality. She concluded by noting that there tends to be higher inequality in countries where we see less social spending.
Examples from Peru and Brazil
Jaramillo spoke about the fiscal situation in Peru. He presented metrics that demonstrate Peru’s collection of government revenue is about average for the region as a whole, and that poverty stands at around 30%. He explained that while the country has a progressive tax system, it has been weakened by the informal sector and thus needs improvement to tackle poverty.
Pereira finished by speaking about Brazil, which has historically shown high levels of inequality and poverty. The state has been very focused on reducing these discrepancies. However, the government’s spending on health and education has not been very effective at reducing poverty, as a big portion of tax revenue is being paid by the poor. He suggested that a progressive tax reform must be implemented for Brazil to reduce inequality.
The Role of the International Community
During the question and answer session, a member of the audience addressed the role of the international community in the process of fiscal redistribution. Lustig remarked that the existence of tax havens is detrimental to the collection of tax revenues; resolving this structural issue must involve the participation of foreign governments. Pereira further pointed out that there are corporate taxes that could and should be captured on multinational corporations that operate in Latin America. Both of these policies would strengthen the fiscal stance of countries in the region.