Ideology and Taxation in Latin America

This paper examines the impact of ideology on tax revenues in Latin America, using a panel of 17 countries from 1990 to 2010. As a first approach, a fixed- effects model is used to identify the impact of ideology on taxation; left-leaning governments are associated with increases in total tax revenu...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Stein, Ernesto H, Caro, Lorena
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2013
Subjects
Economic development
Ideology
Income taxes
Social security taxes
Tax revenues
Taxation
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Summary:This paper examines the impact of ideology on tax revenues in Latin America, using a panel of 17 countries from 1990 to 2010. As a first approach, a fixed- effects model is used to identify the impact of ideology on taxation; left-leaning governments are associated with increases in total tax revenues and income tax revenues of 2. 1 and 1. 3 percent of GDP, respectively. There is no effect on revenues from VAT or social security taxes. To deal with endogeneity problems, an event study and a difference in difference methodology are used to track the behavior of revenues around the time of the shifts to the left. Tax revenues and income tax revenues increase by 1. 5 and 0. 8 percent of GDP when comparing revenues immediately before and after the shift in ideology. The pattern of tax revenues around ideological shifts suggests that the effects are causal.