growing emigration (Perez Caldentey and Vernengo 2007).
What was the inequality impact of the r ecen t changes in terms of
trade and export volumes? A partial equilibrium analysis would
suggest that, given the high concentration of ownership of land
and mines (where the presence of TNCs^45 is very important) in the
region, the gains in terms of trade likely generated, ceteris paribus,
a disequalizing effect on the functional and size distribution of
income. Indeed, production in these sectors is very land, resource
a n d capital-intensive, and has a limited employment generation
capacity^46.
Changes in international terms of trade also affect income inequality
via changes in tax and non-tax revenue. If mining and oil rents
accrue to the state (as in Bolivia) either as an owner or in the
form of royalties, an improvement in terms of trade raises
government non-tax revenue in line with the increases in
international prices. In addition, with a constant ‘government tax
effort’, a rise in the international prices of exported goods generates
an expansionary effect on income and consumption, which generate
greater direct and indirect tax revenue. Due to this effect and to tax
buoyancy, the tax/GDP ratio therefore rises. The tax/GDP ratio
may also increase further if governments intensify their ‘tax
collection effort’.
What does the empirical evidence for Latin America show about
the relation between terms of trade and tax and non-tax/GDP
ratio? The top-left panel of Figure 2 suggests that there is a strong
association (r= 0.97) between average regional terms of trade and
average regional tax/GDP ratio. Yet, such aggregate relation hides
more than it reveals. Indeed, when looking at country data for the
18 Latin American countries analyzed in this paper the relation
appears much weaker (r=0.18) (top-right panel). The situation does
(^45) An important part of the commodity price increase left the region in the form
of profit remittances, as the exploitation of natural resources in Latin America
is often in the hands of TNCs. Chile a nd Peru account for over half of the
regional outflow of profit remittances, though they account for only 8 percent
of the region’s GDP.
(^46) For instance, in Argentina, agriculture accounts for a modest 8 percent of the
total labor force