which made them unable to fund pro-poor and pro-growth public
goods, merit goods and goods generating large positive externalities.
The revenue increase recorded in most of the region constitutes an
important achievement, as the traditional inability or unwillingness
to raise revenue was an important factor in the large accumulation
of public debt during the 1970s, the subsequent debt crisis of the
1980s, and the macro instability of the 1990s.
The revenue increase resulted from a widespread reduction in
excise taxes (due to administrative simplification) and tariffs
(following trade liberalization), a rise in indirect taxes (VAT in
primis), an increase in personal and corporate income tax, and
stagnation of wealth taxes and social security contributions
following the informalization of employment (Table 4).
Table 4. Tax Revenue and Non Tax Revenue GDP ratio of the central
government in 1990, 2002, and 2007, and changes in tax structure in LOC
and NO-LOC countries
Source: Authors’ elaborations on ECLAC’s BADECOM.
Between 2002 and 2007 there was also an increase in non-tax
revenue linked to terms of trade gains. From 2002 to 2007, LOC
countries appear to have performed somewhat better, both in terms
of additional tax and non-tax revenue raised, and in terms of the
progressivity of the tax instruments used^49 (Table 4).
(^49) A regression analysis (1990-2007, 18 Latin American countries) of tax
revenue/GDP was carried out to test for differences in tax behavior between
LOC and NO-LOC countries. OLS estimates confirm that LOC countries taxed
2.5 GDP points more than NO-LOC countries. However, the LOC dummy is
non-significant when using the fixed effects estimator. The countries were then
split between LOC and NO-LOC and tests were carried out separately on the
two subsamples by means of the fixed effects estimator. The results show that
tax/GDP ratio rose on average by 0.20-0.22 GDP points a year in both types of
countries due to greater effort at tax collection and, in some cases, a