Fiscal adjustment

A fiscal adjustment is a reduction in the government primary budget deficit, and it can result from a reduction in government expenditures, an increase in tax revenues, or both simultaneously.

There is no a clear consensus about the definition of fiscal adjustment, but it is commonly understood as a process, instead of as a status: governments run fiscal deficits, fiscal surpluses or balanced budgets, and the process from a budget deficit to a balanced budget is a fiscal adjustment.

There are two significant features in any fiscal adjustment: the duration of the process, usually measured in years, that defines the intensity of the effort; and the composition of the adjustment, measured as the proportion of the adjustment obtained from expenditure cuts compared to the proportion gained from tax increases.

Fiscal adjustments in Europe

European countries experienced intense processes of fiscal adjustment during the 1990s, in order to match the Maastricht criteria and to accede to the Economic and Monetary Union (EMU). The treaty established that any country acceding to the Euro area should keep his government primary budget deficit below the line of three percent, and the first assessment was established for 1997.

The empirical research found that European governments adopted multiple strategies during the 1990s to fulfill the fiscal prerequisites for EMU accession. It concluded that the ideology of the party in government became the most powerful predictor of fiscal policies and strategies of adjustment. Evidence shows that in the new context, socialist governments prefered to use balanced budgets to finance supply-side policies of capital formation and to maintain public employment, and are reluctant to cut these expenditures even at the expense of public consumption and transfers. In a most broader analysis of the period, from the 1970s to the present, results confirmed the hypotheses that, besides economic conditions, fragmentation of decision-making, ideology of the party in government, and closeness to elections affect fiscal policy in general and adjustment strategies in particular.

Fiscal adjustments in the United States

See U.S. monetary and fiscal experience

Fiscal adjustments in Latin America

Due to a combination of factors, including previous debt-based development policies, high interest rates, high oil prices and a decline in the terms of trade Latin American countries experienced a dozen of years of continuous economic depression during the 1980s, known as the lost decade, in which hyperinflation episodes were common. One of the most pressing issues was to manage the debt burden. And, to this end, during this period, the economic policies of Latin American countries evolved from import substitution industrialization to a flawed version of neoliberal economics, sponsored by some international financial institutions like the World Bank or the IMF, and also known as the Washington Consensus, that advocated for fiscal discipline and for a tax reform based on a flattering of the tax curve (lowering the tax rates on proportionally high tax brackets, and raising the tax rates on the proportionally low tax brackets).

The IMF designed Structural adjustment policies that advocated for fiscal adjustments based on expenditure cuts, because they usually included, among other conditionalities:

• Cutting social expenditure,
• Removing price controls and state subsidies,
• Privatization, or divestiture of all or part of state-owned enterprises.
  

Additional evidence

According to some empirical research by economists at this institution (Collier and Gunning, 1999), expenditure-based fiscal adjustments were more stable and durable than revenue-based strategies during the 1980s in Latin American and African countries running structural adjustment programs.

But, despite the words of a prominent supply-side economist, Robert Mundell, who stated that "fiscal discipline is a learned behavior", there is no economic reason to tie the hands of politicians to tight constantly balanced budgets, because it is possible to keep fiscal discipline along the time, balancing deficits and surpluses according to the business cycle, as Neo-Keynesian Economics supports. In fact, many developed nations, including the United States, Germany, France or Italy, carried out neo-Keynesian fiscal policies during the recession of 2002.

References

• Mulas-Granados, Carlos "The Political and Economic Determinants of Budgetary Consolidation in Europe" European Political Economy Review, 2003. pdf
• Lambertini, Luisa and José Tavares Exchange Rates and Fiscal Adjustments: Evidence from the OECD and Implications for EMU (Boston College, August 2003) pdf
• Collier, Paul and Jan Willem Gunning "The IMF's role in structural adjustments" International Monetary Fund WPS 99-18 1999. pdf

Tax incidence

This is my contribution of the week (tm) to the Wikipedia.

First discussed by the Physiocrats in France, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare.

Tax incidence also refers to the ultimate payer of a tax. If a government increases tax on petrol, oil companies may absorb it if competition is intense or they may pass it on to private motorists.

At the aggregate level, tax incidence has been used by political science and sociology to analyze the level of revenue extracted from each income stratum, in order to describe how is the tax burden distributed across social classes. It let to derive some inferences about the progressive nature of the tax system, according to some principle of vertical equity.

Who pays the tax burden

In the United States, the Congressional Budget Office produces a number of reports on the share of all federal taxes paid by taxpayers of various income levels. Their data for 2002 shows the following: (Table 2)

   * The top 1% of taxpayers by income pay 33% of all individual income taxes, and 22.7% of all federal taxes.
 * The top 5% of taxpayers pay 54.5% of all individual income taxes, and 38.5% of all federal taxes.
 * The top 10% of taxpayers pay 67.4% of all individual income taxes, and 50% of all federal taxes.
 * The top quintile pays 82.5% of all individual income taxes, and 65.3% of all federal taxes.

Their numbers also show, that when broken down by quintile, the social insurance taxes are regressive on an effective tax rate basis only for the highest quintile, though that quintile pays the largest share of social insurance taxes (44%). (Table 1)

References

• Pechman, Joseph A Who Paid the Taxes, 1966-85? (Washington, D.C., 1985) ISBN 0815769989.

Paper Philippines

EMAIL INTRODUCTORIO


Para empezar, ponte en la memoria estas 6 KEYWORDS:
tax reform, autonomous agency, principal/agent theorem, tax incidence (by income segment), fiscal adjustment, economic reform dynamics

Y te explico por qué:

Tax Reform / Fiscal adjustment: Ya no estamos en los felices setenta o en los críticos ochenta. Desde que los capitales se mueven superlibremente, todos los países 'tratan' de ajustar lo que ingresan y lo que gastan. De cajón, ¿no? Esto es el ajuste fiscal. El problema de fondo es que los poseedores de capitales móviles (mobile assets) se pueden marchar si les subes a ellos los impuestos. Esto genera toda una serie de problemas para muchos países en su intento de ajustar sus cuentas, y solo pueden hacerlo recortando un ya escaso gasto público, con serios perjuicios para el crecimiento económico, la educación, la sanidad, y todos los factores públicos que favorecen la estabilidad y el desarrollo.

En Europa ajustes fiscales bestias los hemos vivido a saco con la excusa de 'entrar en el Euro'. Así, la mayoría de países se ajustaron entre 1993 y 1997/99 a saco. (este paper lo cuenta todo ). Lo mismo en Latinoamérica en los noventa: el famoso consenso de Washington. Y desde el 1996 en adelante lo fueron consiguiendo: méxico, brasil -plan cardoso-, argentina -durante menem y ahora-, perú -fujimori-, bolivia -hasta el desastre-, chile, etc. En el resto del mundo el FMI y el WB se dedicaron a predicar las bondades de no derrochar. Lo cierto es que en esto podemos estar de acuerdo, pero ¿qué nos interesa? los obstáculos para conseguir reformas fiscales exitosas (en general, suelen fracasar, y nosotros sabemos por qué: recuerda Guate).

Tax incidence: Desde mediados de los 1990, algo que debemos agradecer a las instituciones internacionales es su presión para que las cuentas de los Ministerios de Hacienda sean públicas y transparentes. ¿Quién paga cuanto? En guate los ricos no pagan y tienen un estado policial mínimo. ¿Cuanto paga en impuestos cada segmento de ingreso de la población? ¿contribuyen algo los ricos? ¿hay muchas exenciones fiscales, legales, alegales o ilegales? ¿hay capacidad para tributar, controlar, monitorizar, multar? ¿qué alianza de apoyo sostiene a los gobiernos que reforman? ¿hay margen para aumentar los impuestos? ¿no se puede hacer una tarea de state-building, como en el mundo desarrollado de américa, europa y asia?

La incidencia fiscal se refiere a cuanto paga cada segmento o clase social. Esto es muy importante porque refleja la relación de fuerzas en una sociedad, y no sólo se refiere a cuanto pagan los ricos, sino a si las clases medias o bajas están también incluidas en el esfuerzo fiscal. Como vimos, a veces es más fácil dejar a las clases bajas 'fuera del sistema' (como no contribuyen, tampoco exigen), y hacer del estado un negocio de las clases solventes, donde se decide quien explota los recursos, como se administran los ingresos derivados de tasar el comercio/consumo, etc.

Mientras ese equilibrio del 'Estado como Negocio de unos pocos' no se rompe (Reforma Fiscal exitosa), es difícil una dinámica de cuentas equilibradas pero a niveles óptimos (es decir, con un estado que garantice los servicios e instituciones mínimas que garantizan y promueven el crecimiento: seguridad en las transacciones, laboral, educativa, sanitaria, inversiones, blablablbalabl....).

Economic Dynamics: El típico dilema que enfrentan los políticos: reformas graduales o reformas big bang, esperando que la U que sufrirá la situación -grandes costes y malestar al principio, pero recuperación rápida al final de la legistlatura-, se puede modelizar racionalmente. Esto es una segunda parte del análisis...

Autonomy Agency / Principal-Agent Theorem: A partir de los 1990s comenzaron a florecer propuestas entorno a darle autonomía a ciertas agencias estatales para que, justamente, las reformas no dependieran tanto de la popularidad del político que las llevaba a cabo (punto anterior). En este sentido, empezaron con los Bancos Centrales (hay mucha literatura teórica y empirica sobre ellos) y su control independiente de la inflación. ¡En Europa y America Latina se llevó a la práctica! Luego se descubrió que incluso las agencias completamente autónomas según sus estatutos, siempre tenían la amenaza de los políticos de quitarles su autonomía, por lo que anticipaban en muchos casos esas amenazas y, cuando sus medidas eran demasiado impopulares, 'escuchaban' al gobernante un poco y no escogían las medidas radicales y ortodoxas. El ejemplo argentino siempre sale.

En el caso de las agencias tributarias semi-independientes, que es lo que se ha ensayado, hay una literatura incipiente (descubrí aquel paper sobre Filipinas justo sobre ello). Si recuerdas como funciona en España, que es un caso repetido y poco habitual en Europa, aquí creamos un ente semiindependiente, la agencia tributaria, que se ha encargado de combatir el fraude y de presionar para aumentar la recaudación fiscal de manera bastante exitosa, desde su instauración por Borrell. También se somete a presiones políticas (durante la era PP aflojó la presión contra el fraude). En America Latina (Perú y otros paíseS) también se ha ensayado, con más o menos éxito. En Filipinas, creo que desde 2002, estaban debatiendo si instaurar un modelo semiindependiente, y el paper que te cito a continuación es el informe técnico que compara las virtudes o defectos de crear una institución así, a nivel comparado con otros países.


Esto es una bibliografía iniciática, no teórica:

# Guíate con este paper de USAid. Sumariza mucho acerca del reciente debate sobre 'agencias y es muy bueno en términos comparados. Una buena introducción!!!
http://ideas.repec.org/p/dai/wpaper/fr1002.html

# ¿Cuál es el nivel óptimo de impuestos en un país, dado su nivel económico, composición económica, etc? En este paper, que hacen una estimación para Canadá, la introducción resume un poco el tipo de análisis con que estiman estas cosas. Si te aburres, échale un vistazo (adjunto el paper!!! Optimal Levels of Spending and Taxation in Canada-3FiscalSurplusChao.pdf)

# El paper sobre Filipinas.


La Bibliografía teórica clásica sobre estos temas
http://www.march.es/ceacs/MIEMBROS/programasprincipal2.htm

Warning! Work in Progress...

This area will be restarted, after a chill out time, in October 20th 2005. Keep visiting...

Why do benevolent politicians lie?

Some people say that the reason politicians lie is because the public doesn't want to hear the truth. People want to hear what they want to hear. When two candidates are running and one of the tells the truth and the other says what the public wants to hear, the one who says what the public wants to hear wins the election. Thus, and there are exceptions to this, if you want to win an election, you better start lying, because the guy who's telling you the truth doesn't have a chance.

The 1988 presidential election is an example of this. You will recall the famous lie, "Reeeaaad myyy llliiipsss, nnoooo neeewww taaaxxxeeesss" was the famous lie that Bush (father) told over and over again. Maybe Bush could say that the public misunderstood him and he was saying "Know new Taxes". I caught it at the time. I don't know why everyone else didn't see through it.

But Bush had to tell that lie because Dukakas said that in order to reverse the Reagan deficit, there's going to have to be a tax increase. But that's not what the public wanted to hear. The public wanted to be lied to. So Bush gave the public what they wanted. But had Bush told the truth, he would have lost the election to someone who would lie. In 1988 the public didn't want to hear that the Reagan debt was real and had to be paid back.

By 1992 the situation had changed. The deficit was growing exponentially and Bush didn't have a plan. "Read my lips" wasn't going to work twice. In 1992 the voters were ready for the truth about the deficit and wanted a man with a plan on how to fix it. In this case Clinton told the truth, but the public wanted to hear the truth and the Clinton plan had merit. Clinton run and one on the issue of fixing the economy and taking fiscal responsibility. But had Clinton run in 1988 and told the truth he would have lost. In 1992, the truth worked.

One of the final conclusions in Stokes is that policy switchers in Latin America 1990's did not act shirking, say, pursuing their own interest. In fact, they just wanted to remain in office, to be reelected, and in many cases they succeed. Those who promoted security-oriented agendas in campaign and after being elected, change their mind to efficiency-oriented (market) policies were succesful in addresing the economy. Markets were very jealous watchers of those politicians, and they knew that. Lenders buffered those governments to the neoliberal policies, but they also gave those switchers support, confidence and approval to stabilize their economies. And this tandem proved fabulous for a while, compared to consistent governments, who failed to produce growth and stability.

But, why do benevolent politicians lie? Are politicians forced to lie about their unpopular programs if they want to be the minimal chance of being in office? This would be a real unpleasant world if this was true. In that world, politicians only could be believed in their final goals, not in the means they say are the appropiate to get these goals. And one never is sure about the relation between means -that you can see-and goals -that you just can expect, at best.

Are cuts in taxes the best mean to stop the budget deficit in the US? Or, in a debt crisis, when a raise in taxes is needed, who should pay most for the new increase?
Obviously this is a game of winners and losers, specially in the case of unpopular policies. And each social group has it preference, if we can categorize them according to some criteria on the impact the new policy will have on them -tax the rich, tax the poor. Alesina and Drazen (1991)analyzed that to discover that this is a war-of-attrition game, in which both sides compete maintaining the unsustainable status quo, until some of both groups accepts to bear the biggest part of the painful reform. That explains why some unpopular policies are delayed more or less time: when a new election creates a majority that overcomes the equilibrium between both groups, or when one of the groups cannot shield itself much more time under the crisis (think on hiperinflation, f.ex.), the other group impose its economic receipt. And curiously they found that most of the times it is a regressive solution, against the poor.

In this social tension and conflict, politicians lie. And they switch their promises. They try to avoid those scenarios of mass discussion about the means, that delay and delay the painful reforms. And, additionally, increase the social costs of those reforms! Sometimes a quick reforming start is a second-best solution v. a big debate about who should bear the costs of the reform, specially if it is true that poor groups are more likely to lose the debate...

Mandates and Democracy

According to O'Donnell (1994), representative democracy requires from elected politicians to hold to the voters' mandate. That is, what they promised, it should be fulfill. And if they don't succeed in doing so, they should be fired in the next elections.

Stokes (2001) sings a different song. Her vision of representative democracy accepts that politicians change their mind after being elected if they think there are better roads to wellbeing. So, in the concept of mandate, there is a distinction between preferred goals and preferred ways to achieve them. Politicians should attend to the first element in any case, in order to be accountable; but they can switch their mind about the best means to get those goals without being attempting against democracy.

In the case of Latin American states, there is a curious correlation between the strenght of political parties (age, cohesion, militants, etc) and doing policy switches. Switches to neoliberalism occured in a set of nations (including Argentina, Peru or Venezuela), but turned to be massively supported after they took place. Corruption and stagnation would defeat those presidents two or more terms after the policy switches, but the initial support grew to astronomic levels in all those countries.

Germany, Coalitions and Reforms.

Germany is yet in the news as the German parties try to address some kind of multicoloured coalition. Parliamentarism offers that kind of stuff: results in which there is no a clear winner and a set of temptative coalitions to rule a country in one direction or another.

Fortunately for the traditional Volksparteien parties, SPD and CDU, the hecatomb in the polls was minimised because no populist neither nationalist party grew at the expenses of the traditional actors, unlike Austria, Denmark or Switzerland. The German past has much to do with that.

Politicians at the stakes
Politicians and parties have two kind of preferences, staying in office and executing their preferred policies, and not necessarily in that order. All of them can agree in the first point, but obviously they will have to accomodate the second point in order to present a reforming agenda for an economy that languishes. And this is where the discussion grows.

The media is asking if German politicians would be able to get an agreement and conform a new government. They need some figure, a chancellor, apart from the soup of acronyms, to cover their front page and to keep the attention of the audience.

Unfortunately, they are not focussing the attention in the real dilemma: a government will be formed for sure, but his ability to reform is not granted. I found, in a recent paper, that coalitions with parties of different ideologies (at the left-right from the median voter) are unable to impulse great reforms. Only parties in the same side of the ideological spectrum were able to impulse big reforms in the 110 coalition cases that I found in the last three decades in Europe.

Any kind of coalition formed by three or more parties from different segments of the Left and the Right is condemning Germany to the Status Quo and failed reforms that won't fulfill the needs of more than five million of unemployed voters and sluggish wages. In the next five years, the competition from China and other emerging economies will be ferocius, and the next call to the ballot-box can be more dramatic. A Grand Coalition will calm now the markets, but it's a ticket for an express to the Hell. Both big parties will be accused of the blockade in the reforms.

A red-red-green coalition will entail radical reforms for sure. A black-yellow + a variant ally (SPD, Green) will likely do the same. But a big mix is a passport for more stagnation in Central Europe. Theory and evidence (1) (2) (3) is clear about that.

Reset and Go...

Three months after the last post, I have decided to try a dramatic effort to put forward my research: an Spartan daily schedule, and I'm comitted in being really strict with that.



Note: the time lenght of each spell is adaptative to contextual needs.

Enlightement

Finding an interesting (personal/academic) topic for a research project is one of the most difficult things an human being can achieve.

I have seen most of my colleagues suffering from anxiety in their fight against that (and I see some of them). But, that friday, I finally "saw the light". Call me pratyekabuddha. :-)

Adam and me were discussing the interesting cases of Perú and Brazil that Friday. He has a recent indepth knowledge of the late Lula's success policies, and I found those previous weeks a lot of information about the radical fiscal reforms in Perú. The contrasting cases, specially if we attend to the popularity of both presidents at the beginning of his mandate and now, are examples of similar strategies with different results... Why?

He told me I can write a paper for May, 23th. Why not? :-)

More taxpayers... from everywhere?

Politicians and bureaucrats design together objective tax rules that are enforced in the same way across the nation, but still there is some room for discretionary enforcement of the tax system: the effort of tax officials can be addressed more to some sectors or specific regions, and the public propaganda against tax fraud can be also focused.

So the expansion of the tax base, in number of taxpayers, is basically a
partisan-driven policy.

In the period examined here (1997-2005) Peru lived two different regimes: from 1997 to 2000, a weak authoritarian regime ruled by Alberto Fujimori, who felt in an spiral of corruption scandals in 2000, and the opposition leader Alejandro Toledo was elected in 2001.

The Peruvian tax base collapsed in 2000, in the midst of sudden corruption scandals: I observed the same for Spain during 1993-1995, but in a slower way. In Perú, the tax base also quickly grew after 2000, as the incumbent changed. In Spain, taxpayers gained inmediate confidence in their tax administration the month after the Conservative took the power instead of the Socialists. In both cases, the opposition party leaded a campaign focused in corruption scandals.



In general terms, the Fujimori regime during the 1990s was a period of undoubtless macroeconomic stability, but the long-term impact of Fujimori's neoliberal economic policies is debated. Studies by INEI, the national statistics bureau, suggest that they carried high social costs; they acerbated the already high rates of poverty that plagued Peru at the start of his presidency and led to a deep recession from which the economy has yet to recover. [5] [6] Fujimori's supporters, however, disagree with this assessment, because studies from APOYO (a peruvian research center) has shown that the extreme poverty has fallen to half in the Fujimori period. (Source: Wikipedia)

Alejandro Toledo leaded the corruption charges against the Fujimori regime, and he was elected in 2001. At the beginning of his mandate, he had a 58% of approval, but the mandate was plagued of political turmoil and strikes, and a poll in February 2005 gave him just a 10% of approval, compared to a 88% of disapproval. He has become the more unpopular president in Latin America history, much more than Alán García - who collapsed the economy a 40% at the end of 1980's.

Many people joined its party Perú Posible looking for a job, despite the leitmotiv of the incumbent was to break with a past of clientelism and corruption. Protests and internal dissent forced Toledo to began a process of positioning partisan members into the public service. But nor the macroeconomic bonanza neither the strategies to play the patronage card and to gain consent have stopped the revolts:

"In June 2002, the southern city of Arequipa was paralysed for a week by strikes and riots in protest of the privatisation of two regional electricity generating plants, the largest civil unrest in Peru for fifty years. The government had underestimated local resistance and was forced in the end to rescind the privatisations. The affair sent a clear message to the Toledo administration that its policies are highly unpopular. Despite macroeconomic growth (4,9% for 2002), Peru remains very poor indeed, with more than fifty percent of the population living in poverty, and fifteen percent in extreme poverty." Source: Wikipedia

Coming back to the original point. The incumbent basically keep the tax base by department at the same level during the Fujimori mandate, it collapsed in 2000, and it grew steadily during 2001-2005. The level of collapse was different by departments, and there is also a lot of variation in the number of new taxpayers' growth. Why?

Tax Incidence in Peru (II)

Tax incidence on taxpayers may differ across regions but, are taxpayers equally spread accross the country?

The table below shows how only 5 departments (and 1 strange case) are over the average level of taxpayers/population (12%).

But, surprisingly, another 8 departments with around one million of inhabitants have an extremely narrow tax base (Cusco, Lambayeque, La Libertad, Junín, Piura, Ancash, Puno and Cajamarca). It is easy to identify two groups: those around Cusco, in the Andean dorsal, which are montainous and with rural economies; and those in the North coast, from Lima to the Ecuador's border, these are undertaxed populations.

Among the departments "over the line", let apart Lima, the rest of departments (Arequipa, Moquegua and Tacna) are all overtaxed and near the Chilean border (all this region is known for their mining wealths).

So Lima's contribution to the national burden comes to barely a 90% of total revenues. Lima's taxpayers represent 58% of total tax base. But Lima's population represents 32% of total Peruvians. Why?

Lima 90% of total tax revenue 58% of total taxpayers 32% of total population

There are two forces that causes this distribution of the tax system:

a) Inequality. The assets are unequally distributed. Those in the Metropolitan area posseses much more resources ($/capita), but also corporations and other taxable agents have their fiscal address in Lima. That's the explanation for the 90%.

b) The Poor don't pay. Tax systems around the world avoid to tax poor people, for ethical (poor should receive, not pay) and technical reasons (a Cost-Benefits Calculus: monitor the poor is more expensive than the quantity to extract them).

The problem is that we are assuming that the proportion Rich/Poor out-of-Lima is higher than in Lima, and it is not necessarily true.

Tax Incidence in Peru (I)

I supposed that Peruvian politicians had been influenced for decades by wealthy groups to favor them in fiscal terms. For example, local industry would be in some way protected despite the international pressures to open borders. Some transactions would be undertaxed, as well as some kinds of personal or corporate revenue.

But I also suspected that governments would increase their tax revenue despite their allies when they run severe fiscal shocks , for example, the 1988 Peruvian economy collapsing at an annual average of -33%.

Before that, I need a national spectrum of the Peruvian tax state. Below you can find a map that I made using official data from the SUNAT (Peru's tax agency).

Source: Real Own Elaboration :-)

In clear terms, a citizen of Lima department paid 13.600 Nuevos Soles during 1997 in taxes. This citizen only paid 12.500 NS at the end of 2004. Meanwhile, a citizen in Arequipa, the second city of Peru, industrial, paid a 43% in taxes compared to a Limeño 1997, or just 32% in taxes in 2004.

The most striking point is that a 33% of those departments were taxing less than 10% per capita of the level taxed in Lima. The few coastal departments, where there exist some industry, better communications and the bourgeoisie lives, have a modest, but significant, level of tax incidence.

Surprisingly, economic growth and national macroeconomic development in the last years of 1990's and early 2000's didn't translate into a deeper presence of the tax state into the hinterland. Barely elsewhere tax incidence fell comparing to Lima's per capita tax revenues: tax incidence continued falling in 17 of 23 departments compared to Lima (1997-2005). In 2 departments it kept constant, and in 3 it grew.

There are many hypothetical reasons for these numbers, that I summarize here:

• Changes in trade taxes could affect mainly to export-led regional economies, or those which import a lot from abroad.
• Economic and demographic transitions (in eight years): rural to urban migration, economic and industrial transformation, arrival of foreign corporations -privatisation- to the capital.
• Broadening of the tax base: from 1,6 milion of taxpayers in 1997 to barely 3 milions in 2005. These new pockets of taxpayers could enter regionally biased in the tax system.
• Tax capacity out of Lima progressively damaged, or vice versa, Tax capacity in Lima improved.

In any case, Lima department concentrates 89% of total tax revenue in 2004. So, the question changes:

a) is Lima the real core of the Peruvian tax system because a 90% of the wealth is concentrated here, or...

b) is this in that way just because Peru doesn't have tax capacity for monitoring and taxing its citizens in far, less developed departments, or...

c) it doesn't have real political incentives for taxing indigenous' business and economic activities? (there is a long story of peasant revolts in those Andean provinces from XVIIth century to the last months).

Readings (I)

I have reading for a while Blood and Debt. The argument of the book is quite convincing, namely the war wasn't a state-building driven force in Latin America because a set of of variables reduced intercountry wars. More detail on the complexities of the argument tomorrow...

The readings for next week are quite varied and interesting:

Caballero, Gonzalo (2001). Los fundamentos institucionales del "milágro económico" español. 1950-2000. Teoría y evidencia.
This awarded and recent thesis could be interesting to see parallelisms between the development of the State in Spain and in Latin America, from the 1950's onwards.

Goldman Sachs (2004). Growth and Development: The Path to 2050.
The George Soros Foundation and a set of mainstream economists are behind this work plenty of policy recommendations. It's the mainstream answer to the failure of the Washington Consensus, a new Trento Concilium with a summary of the economic and policy evidence of the last ten years. Interesting.

Lowenthal, Abraham et alter (1986). Armies and Politics in Latin America.
A classic on the role of the military in Latin American Politics. A must read.

Balcells, Laia. (2004) Trade Openness and Preferences for Redistribution. Can we Support the Compensation Hypothesis?
A promising work by my colleague that questions much of the conventional wisdom on trade openness and state growth.

Stern, Steve J. (1987). Resistance, Rebellion, and Consciousness in the Andean Peasant World. 18th to 20th Centuries.
A seminal work on the topic of participation of the excluded masses in the political arena. A must read to explain tax strategies.

Eckstein, Susan. (1989). Power and Popular Protest.
In line with the last book.

Grugel, Jean (1995). Politics and Development in the Caribbean Basin.
A guide for an outsider. The same for Politics in Jamaica (Payne) or The Democratic Revolution in Latin America, by Howard Wiarda.

Rodriguez, José A. y Ámgel Fernandez Prieto (2003). Fiscalidad y Planificación Fiscal Internacional.
This book have a program to simulate international variations in taxes. It can be useful to experiment with the topic of tax competition.

Wright, Angus and Wendy Wolford. (2003). To inherit the Earth. The landless Movement and the Struggle for a New Brazil.
Someone recommended me this book for a different approach to those sectors out the legal market.

Also a list of 33 papers have been added to my readings list. The authors include classics on politics and elections, tax analysis, country and regional narrative stories and research works on the development strategies from 1950 onwards. They cover a good part of the field.

Stand on the Shoulders of Giants: 142,000 entries for Latin America

There are many ways in life to take decisions. But right decisions require of special care and reflexion: who can be a best director than Adam Przeworski for a Latin American political economy topic? No one.

If you put the word "Latin America" in Google Scholar, his seminal book Democracy and the Market appears in first place. More than four hundred respectable authors cited him in their works. Apart from being an excellent person, he is one of the best of the world in his field. It would be a privilegue to be accepted by Adam, and I have the intuition that he will accept.

Stand on the shoulders of giants to reach a higher sky.

Diarios de Motocicleta

Ernesto Guevara, a young idealist student in Medicine, and Alberto Granado, a biochemist whose taste for the pleasures of life overcomes the idealism of his brother-friend, embarked on a thousand-of-miles travel across the core of South America.

They left their bourgeois lives in the acomodate Buenos Aires of the 1950's to face the miseries and exploitation of the weak, in any form and number, in any country, city, farm, mine or jungle they found. The marginalization of those who can not defense themselves is overrepresented in the case of the Peruvian camp of lepers. Those who are severe ill are separated from the rest, also marginated from the rest of the world in the jungle. But they are doublely separated by the Amazon shores from the less sick persons, underlying the "no-limits" of injustices.

The main problem in the film is that Guevara adopts a role similar to Jesus. He traveled accross mountain and deserts, in misery, meeting poor people that increased his compassive nature for the Human being. He tried to sane the ill, to give love to those that felt alone, to be honest all the time, to keep him loyal to his principles until the end. He becomes a mesianic figure in the middle of the film, and it can be quite irrealistic. Fanatism is not unveiled, meanwhile politics appears as a secondary topic in the script.

But this film is noteworthy for many reasons, especially those more anthropological related to the way humans react to injustices: according to their resources and skills. Indirectly, one can conclude that only those individuals who accumulate the abilities and resources to overcome situations of injustice, would do it. By contrast, the majoritarian rest will remain silent, trying to find alternative paths of survival inside the system.

Consent is a strategy not only for those privileged by the social equilibrium, but also for those unable to construct an alternative and fight for it.

Those dirigents willing to change the nature and dimensions of the government they rule would find surprising allies among those who apparently express consent, while the case of those who will oppose for sure to changes of the status quo are quite more easy to identify -through an analysis of those who lose privileges.