State Capacity in Latin America

• Published in: Economía (Washington, D.C.) Vol. 10; no. 2; pp. 1 - 45
• Main Author: CÁRDENAS, MAURICIO
• Format: Journal Article
• Language: English
• Published: Washington Brookings Institution Press 01.04.2010; The Brookings Institution
• Subjects: Civil wars; Countries; Democracy; Economic development; Economic stabilization; GDP; Government bureaucracy; Gross Domestic Product; Income inequality; Income taxes; Inequality; Nationalization; Political power; Political systems; Politics; Public goods; Society; Tax revenues; Taxes; Total taxes; War; Latin America
• ISSN: 1529-7470; 1533-6239; 1533-6239
• DOI: 10.1353/eco.2010.0003

The debate on the role of the state in the economic development of Latin America swings from the defense of state activism to the minimalist view emphasizing the advantages of market liberalization and privatization. Too often, this ideologically driven controversy between market mechanisms and state intervention assumes that the government is capable of delivering whatever society wants from it. In the more recent economics literature, a distinction has been made between "legal" and "fiscal" state capacity. The paper's main claim is that fiscal state capacity is stunted in Latin America as a result of the high concentration of economic and political power. This paper has attempted to explain why state capacity is generally low in Latin America. In doing so, it has identified two key determinants: the degree of political and economic inequality and the incidence of internal and external wars. Both theory and evidence show that the concentration of political and economic power reduces the incentives to invest in state capacity.