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Strengthening the connection between revenues and expenditures - - PowerPoint PPT Presentation

Jul 09, 2023 140 likes •389 views

Public finance for development: Strengthening the connection between revenues and expenditures Pablo Sanguinetti Research Director CAF- Development Bank of Latin America Brookings Institution June, 24 th , 2013 Accountability Taxes (structure

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Pablo Sanguinetti Research Director CAF- Development Bank of Latin America

Public finance for development: Strengthening the connection between revenues and expenditures

Brookings Institution June, 24th, 2013

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STATE CITIZEN

Taxes (structure and administration) Expenditure (public goods and redistribution)

Reciprocity Accountability

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SLIDE 3

Public Expenditure as a % of the GDP in Latin America

4,8% 8,3%

22,9% 27,8%

20 years 1990 - 1992 2007 - 2009

Taxes (structure and administration)) Expenditure (public goods and redistribution)

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Social public expenditure explained most of the growth in public expenditures during 1990- 2009

4,8%

Taxes (structure and administration)) Expenditure (public goods and redistribution)

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20 years

12% 18%

1990 - 1992 2007 - 2009

3,2% 4,8% 4,9% 8,3%

Education Social Security and social assistance

22,9% 27,8%

Social public expenditure

Taxes (structure and administration)) Expenditure (public goods and redistribution)

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Improves income distribution

  • I. Access to public

goods

  • II. Income

transfers

  • III. Subsidies

(ej. Energy) Public Expenditures Taxes

Taxes (structure and administration)) Expenditure (public goods and redistribution)

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  • 2%
  • 2%
  • 4%
  • 5%
  • 8%
  • 3%
  • 2%
  • 5%
  • 6%
  • 4%
  • 6%
  • 7%
  • 15%
  • 20%
  • 23%
  • 25%
  • 20%
  • 15%
  • 10%
  • 5%

0% Perú Bolivia México Brasil Argentina

Cumulative variation (%) of the Gini Index

Total redistributive effect of public expenditure (and taxes) in selected countries

Taxes (structure and administration)) Expenditure (public goods and redistribution) Source: own elaboration based on Lustig (2012).

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  • 1%

0%

  • 2%
  • 2%
  • 1%
  • 2%
  • 2%
  • 4%
  • 5%
  • 8%
  • 3%
  • 2%
  • 5%
  • 6%
  • 4%
  • 6%
  • 7%
  • 15%
  • 20%
  • 23%
  • 25%
  • 20%
  • 15%
  • 10%
  • 5%

0% Perú Bolivia México Brasil Argentina

Cumulative variation (%) of the Gini Index

(1) Efecto de los impuestos directos y las contribuciones a la seguridad social (2) = (1) + Efecto de las transferencias monetarias directas (3) = (2) + Efecto de los impuestos y subsidios indirectos (4) = (3) + Efecto de las transferencias en especie (educación, salud, etc.)

Taxes (structure and administration)) Expenditure (public goods and redistribution)

Total redistributive effect of the public expenditure (and taxes) in selected countries

(1) Effect of direct taxes and social security contributions

Source: own elaboration based on Lustig (2012).

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SLIDE 9
  • 1%

0%

  • 2%
  • 2%
  • 1%
  • 2%
  • 2%
  • 4%
  • 5%
  • 8%
  • 3%
  • 2%
  • 5%
  • 6%
  • 4%
  • 6%
  • 7%
  • 15%
  • 20%
  • 23%
  • 25%
  • 20%
  • 15%
  • 10%
  • 5%

0% Perú Bolivia México Brasil Argentina

Cumulative variation (%) of the Gini Index

(1) Efecto de los impuestos directos y las contribuciones a la seguridad social (2) = (1) + Efecto de las transferencias monetarias directas (3) = (2) + Efecto de los impuestos y subsidios indirectos (4) = (3) + Efecto de las transferencias en especie (educación, salud, etc.)

Taxes (structure and administration)) Expenditure (public goods and redistribution)

Total redistributive effect of the public expenditure (and taxes) in selected countries

Source: own elaboration based on Lustig (2012).

(1) Effect of direct taxes and social security contributions (2) = (1) + Effect of direct monetary transfers

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SLIDE 10
  • 1%

0%

  • 2%
  • 2%
  • 1%
  • 2%
  • 2%
  • 4%
  • 5%
  • 8%
  • 3%
  • 2%
  • 5%
  • 6%
  • 4%
  • 6%
  • 7%
  • 15%
  • 20%
  • 23%
  • 25%
  • 20%
  • 15%
  • 10%
  • 5%

0% Perú Bolivia México Brasil Argentina

Cumulative variation (%) of the Gini Index

(1) Efecto de los impuestos directos y las contribuciones a la seguridad social (2) = (1) + Efecto de las transferencias monetarias directas (3) = (2) + Efecto de los impuestos y subsidios indirectos (4) = (3) + Efecto de las transferencias en especie (educación, salud, etc.)

Taxes (structure and administration)) Expenditure (public goods and redistribution)

Total redistributive effect of the public expenditure (and taxes) in selected countries

Source: own elaboration based on Lustig (2012).

(1) Effect of direct taxes and social security contributions (2) = (1) + Effect of direct monetary transfers (3) = (2) + Effect of indirect taxes and subsidies

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SLIDE 11
  • 1%

0%

  • 2%
  • 2%
  • 1%
  • 2%
  • 2%
  • 4%
  • 5%
  • 8%
  • 3%
  • 2%
  • 5%
  • 6%
  • 4%
  • 6%
  • 7%
  • 15%
  • 20%
  • 23%
  • 25%
  • 20%
  • 15%
  • 10%
  • 5%

0% Perú Bolivia México Brasil Argentina

Cumulative variation (%) of the Gini Index

(1) Efecto de los impuestos directos y las contribuciones a la seguridad social (2) = (1) + Efecto de las transferencias monetarias directas (3) = (2) + Efecto de los impuestos y subsidios indirectos (4) = (3) + Efecto de las transferencias en especie (educación, salud, etc.)

Taxes (structure and administration)) Expenditure (public goods and redistribution)

Total redistributive effect of the public expenditure (and taxes) in selected countries

(1) Effect of direct taxes and social security contributions (2) = (1) + Effect of direct monetary transfers (3) = (2) + Effect of indirect taxes and subsidies (4) = (3) + Effect of non cash income transfers (education, health, etc.)

Source: own elaboration based on Lustig (2012).

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Expenditure Access to public goods and services, transfers and subsidies

But efficiency also matters

Equality in income distribution An efficient management is a moral obligation for public administrators Efficiency of public expenditure is important to strength reciprocity Permits the saving

  • f resources and

improves the impact of redistributive programs

Taxes (structure and administration)) Expenditure (public goods and redistribution)

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SLIDE 13

Inputs Enviroment Efficiency Results

Taxes (structure and administration)) Expenditure (public goods and redistribution)

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Distributions of the SIMCE grades and efficiency levels by type of institution (average 2004-2010) Perú (2010)

Taxes (structure and administration)) Expenditure (public goods and redistribution)

SIMCE Grades

SIMCE Grades

Density function Density function

Efficiency scores

Efficiency scores

Municipal schools Private schools Efficiency scores

Density function

Efficiency scores

Public schools Private schools

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Tax collection and GDP per capita

Is Latin America making all the necessary effort at tax collection? Improving the quantity and quality of public goods requires the strengthening of the tax collection

Taxes (structure and administration) Expenditure (public goods and redistribution))

  • 1. Tax Structure
  • 2. Tax Administration

Main determinants:

Tax revenues (percentage of the GDP) GDP per capita (USD 2005, PPA)

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Evolution of main taxes inside the average tax structure of Latin America (% of total tax revenues)

The low tax effort is originated, in part, by a low participation of direct taxes in total tax revenues:

Main taxes General taxes on goods and services Income and capital gains taxes Social Security contributions Specifics taxes on goods and services International trade duties Property taxes Other taxes 5 10 15 20 25 30 35 40 Relative participation (percentage of total tax revenues) 1990 - 1992 1999- 2001 2008 - 2009 Taxes (structure and administration) Expenditure (public goods and redistribution))

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The low tax effort is also related with weaknesses in tax control The tax evasion rate

  • f the VAT in Latin

America is 27% 11% in Chile 38% in Nicaragua The evasion rate of the income tax in Latin America is 51,4% 41,6% in Mexico 64% in Ecuador

Impuestos (Estructura y administración) Gasto (Bienes públicos y redistribución)

The evasion rate in USA is 16%

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¿Virtuous circle?

Reciprocity

Better expenditures, more willingness to pay taxes

Accountability

More taxes, more empowerment and accountability

STATE CITIZEN

Taxes (structure and administration) Expenditure (public goods and redistribution)

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According to the CAF survey, the families in Latin America “are more willing to pay taxes” if the government performs better

(www.caf.com/investigacion)

Remove corruption: 11,5% will pay more Better health and education: 11,5% More citizen security: 11,4% More protection to the poor: 9,2%

Taxes Expenditure

Reciprocity

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SLIDE 20

Experiment in 17 cities of the region: random assignment of information about the performance of local governments

Complementary evidence:

Rio de Janeiro: positive information about the local government Increase willingness to pay taxes on vehicles and to reduce VAT evasion

Taxes Expenditure Reciprocity

Timmons, 2011 : Corruption reports in Brazilian Municipalities Lower tax collection after the information was made public

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Citizens doesn´t like to pay taxes

72,6% of households in Latin America have this

  • pinion

Taxes Expenditure

Accountability

But when citizens pay taxes, they feel they have more rights to ask for a good public administration

Historical evidence: independence episodes

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SLIDE 22

Taxes Expenditure

Reciprocity Accountability

Evidence supports the existence of this virtuous circle:

The size of the public sector increases as a share of GDP along the development path

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Direct Taxes Transparency in the use of natural resources revenues A professional and independent Tax Administration

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Taxes strengthen democracy

Taxes