1. 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

2. 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?

3. 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

4. Perceptions about fiscal policy
Perceptions about taxation
( round) 4

5. Perceptions about fiscal policy
Satisfaction with public services
( round) 5

6. 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

7. 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

8. 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)

9. Fiscal policy effects on households’ incomes
Utilization of services: 2006 National Characterization Socio-economic Survey (CASEN) and 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.

10. 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:

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

12. 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

13. 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)

14. 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

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

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