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Do Particularistic Political Institutions Affect Tax Neutrality in Latin America?

Sat, May 26, 2:15 to 3:45pm, TBA

Abstract

This paper investigates the determinants of reforms that increase or decrease tax neutrality in Latin America during the period 1990-2004. It takes advantage of a new dataset that focuses on actual changes to the tax code. We consider several possible causes of such reforms, including partisanship, legislative and presidential elections, inflation, per capita income, and financial crises. Our main focus, however, is on the extent of the “personal vote” in the lower house of the legislature. We anticipate that the greater the personal vote, the more likely there will be tax reforms that reduce the overall neutrality of a country’s tax system. Our results suggest that tax incentives for specific constituencies were more common under more particularistic electoral systems. This means that that particularistic institutions affect not only the spending side but the tax side. Reforms that broadened the tax base and made the system more neutral were more common during financial crises, though when a legislative election was close this result no longer held.

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