Inequality, Taxation, and Public Transfers in Latin America
This chapter looks at inequality trends and the redistributive potential of fiscal policies in Latin America. It suggests that increased mobilization of tax revenues from the middle class, the segment of society with the highest “tax morale,” could help rectify the frayed fiscal compact—the fragile agreement between the governed and the government about what sums the former owe as taxpayers and what services the latter provides in return. A new fiscal compact might be constructed around the Sustainable Development Goals, through a holistic approach focused on public tax revenues and spending priorities. The chapter then emphasizes the need to rely on direct taxation, which could help close the gap between the rich and the poor and improve the realization of human rights; to maximize the potential redistributive impacts of taxes and transfers; and to improve service delivery.