On April 12, the Inter-American Social Protection Dialogue (IASPD) took place with the theme of "Fiscal Policy as a mechanism to combat inequality: analysis in Brazil and Guatemala (Original title: La política fiscal como mecanismo para combatir la desigualdad: análisis en Brasil y Guatemala")”. The panelists who participated were Estuardo Moran from the Commitment for Equity Institute and Rodrigo Orair from IPC-IG/IPEA, who addressed the issue of various challenges that the Latin American region faces with regards to fiscal policy and its effects on inequality, focusing on specific cases of Guatemala and Brazil respectively.
In the first presentation, Estuardo Moran explained the Guatemalan situation in terms of fiscal policy, especially focusing on the inequality and gap according to ethnicity. He stressed that due to limited social spending, Guatemala has a small government; in 2010, the primary expenditure in Guatemala was only 13.6% of the GDP, and tax burden at 12.2%. Followed by a brief introduction of the Commitment to Equity Institute (CEQ), which is a project that investigates the impact of the tax system and spending to reduce inequality, Moran further explained about the methodologies used in the studies of CEQ, applying it to the Guatemalan case on the topic of how redistribution policies can be improved, and how poverty and the gap between indigenous and non-indigenous people can be reduced through fiscal policy. Based on data provided by ENIGFAM 2009-2010, the study found that Guatemala has a high level of inequality, especially between different ethnicity. Fiscal policy in Guatemala has had little effect on reducing such inequality, where Morán highlighted the importance of implementing pro-poor policies. In the latter part of the presentation, Morán further elaborated by putting the case in an international context. Fiscal policies implemented throughout Latin America varied from country to country – from Argentina with fiscal policies that has a big redistributive impact, to Honduras with the highest inequality. Efforts to reduce inequality, however, does not always contribute to reducing poverty - in many cases net indirect taxes deriving from subsidies resulted in increased poverty rates.
In the second part of the Webinar, an analysis of fiscal policies of Brazil was given by Rodrigo Orair. With the results of the IPC working paper, he began by explaining that in Brazil, tax burden was very high, at 33%, which is 10% higher than the average tax burden ratio of the region, and almost similar to that of OECD countries. This may be problematic in an economy like Brazil’s; as a developing country, inequality is still visible in Brazil, especially marked by a regressive tax system. Using different sources, Orair demonstrated that there has been a violation of both vertical and horizontal equity in Brazil, and that the distributive effect of tax has been much less evident than in other Latin American countries such as Mexico, Uruguay and Argentina. He pointed out that the distortion comes from the legislation of Brazil regarding tax on dividends – the “super rich” benefitted from the legislation that allowed them to pay low taxes. More specifically, there has not been any reform to increase progressivity in Brazil during the last 30 years. Orair concluded with some recommendations for new challenges and dilemmas in social protection. He proposed that a reform would take place that would reduce the pressure on redistributive spending and create fiscal space to accommodate and improve social protection.