ECONOMISTS IN RECENT YEARS have become increasingly aware of the deficiencies in their customary treatment of the distribution of income and wealth. The conservative bias toward accepting the distributional outcomes generated by the market system, which has traditionally been common in the profession, has been sharply eroded by the accumulating evidence of market imperfections, by the new respectability of radical ideologies, and, not least, by the exposure of many economists to the pervasiveness of distributional issues in the real world. This new interest in distribution has taken many forms, from the publication of several important treatises and symposia on the theory and practice of income distribution to frequent statements by the various international agencies of their concern with distributional questions.
This new interest in distribution has, of course, been reflected in public finance literature as well. In fact, the subject is hardly a new one there, for the major questions confronting fiscal experts have always been distributional in nature, even if it has not always been considered wise to acknowledge this fact. Nevertheless, it seems fair to say that in recent years there has been a marked revival of concern with the impact, actual or potential, of the fiscal system on the distribution of income and wealth.
One manifestation of this concern is the growing number of studies on the incidence of the tax system—and, less often, of government expenditure as well—in one developing country or another. More generally, the need to relate fiscal analysis more closely to development theory by considering as explicitly as possible the interaction between tax and expenditure policy, income distribution, and economic growth has come increasingly to the fore. In addition, as has long been true, tax reports in all countries customarily contain many references to the progressivity or otherwise of this or that tax, references that presumably allude to its effect on the distribution of income and wealth, although this is not always made as clear as one might hope. Finally, no conference on either taxation or income distribution would be complete without a session on the connection between the two.
It is impossible in one article to review all the literature relevant to the effects of taxation on income distribution in Latin America. We have therefore chosen to focus here on the narrower subject of the methods, findings, and usefulness of those quantitative studies that seek to determine the redistributive impact of Latin American tax systems. The continuing production of such studies by scholars and fiscal reform commissions in Latin America, as in the rest of the world, sufficiently justifies this focus. Section I summarizes the principal characteristics of the available studies and considers the numerous definitional and statistical problems that bedevil them. Section II discusses a number of more basic conceptual and technical problems that call into question both the underlying rationale and the usefulness for policy purposes of many of these studies. There is perhaps little that is surprising about any of the points made in this section, except the fact that they are so commonly ignored. Section III sketches briefly a few suggestions for redirecting to potentially more useful ends some of the scarce talent that might otherwise be devoted to similar questionable calculations of the distribution of the tax “burden.”
Aaron, Henry, “Estimates of the Distributional Impact of Brazilian Taxes and Expenditures,” Council for International Progress in Management (U.S.A.) Inc., July–August 1968 (mimeographed).
Adler, John H., Eugene R. Schlesinger, and Ernest C. Olson, Public Finance and Economic Development in Guatemala (Stanford University Press, 1952); reprinted by Greenwood Press, Westport, Connecticut, 1970.
Andic, Fuat M., Distribution of Family Incomes in Puerto Rico: A Case Study of the Impact of Economic Development on Income Distribution, Institute of Caribbean Studies (University of Puerto Rico, 1964).
Andic, Fuat M., and Suphan Andic, Government Finance and Planned Development: Fiscal Surveys of Surinam and the Netherlands Antilles, Institute of Caribbean Studies (University of Puerto Rico, 1968).
Atkinson, A.B., “Capital Taxes, the Redistribution of Wealth and Individual Savings,” The Review of Economic Studies, Vol. XXXVIII (April 1971), pp. 209–27.
Bentzel, Ragnar, “The Social Significance of Income Distribution Statistics,” The Review of Income and Wealth, Series 16 (September 1970), pp. 253–64.
Bird, Richard M., “Equity and Taxes in the Carter Report,” in Report of Proceedings of the Twentieth Tax Conference, November 1967, Canadian Tax Foundation (Toronto, 1968), pp. 256–64.
Bird, Richard M., (1970 c), “Optimal Tax Policy for a Developing Country: The Case of Colombia,” Finanzarchiv, Neue Folge, Vol. 29 (February 1970), pp. 30–53.
Bird, Richard M., (1970 d), “Income Distribution and Tax Policy in Colombia,” Economic Development and Cultural Change, Vol. 18, Part 1 (July 1970), pp. 519–35.
Bird, Richard M., (1970 e), “The Tax Kaleidoscope: Perspectives on Tax Reform in Canada,” Canadian Tax Journal, Vol. XVIII (1970), pp. 444–73.
Bird, Richard M., “La Política Tributación en Cuento Determinante de la Distribución del Ingreso: Comentarios,” in Organización de los Estados Americanos, Secretariat General, La Política Tributaria como Instrumento de Desarrollo (Washington, 1973), pp. 404–14.
- Search Google Scholar
- Export Citation
)| false “ Bird, Richard M., La Política Tributación en Cuento Determinante de la Distribución del Ingreso: Comentarios,” in Organización de los Estados Americanos, Secretariat General, La Política Tributaria como Instrumento de Desarrollo( Washington, 1973), pp. 404– 14.
Bobrowski, Luis, and Samuel Goldberg, “Presión Tributaria por Niveles de Ingreso: Un Análisis Comparativo,” Finanzas Públicas: Segundas Jornadas, 1969 (Córdoba, Argentina, 1970), pp. 391–445.
Bracewell-Milnes, John Barry, The Measurement of Fiscal Policy: An Analysis of Tax Systems in Terms of the Political Distinction Between “Right” and “Left,” Confederation of British Industry (London, 1971).
Brady, Eugene A., The Distribution of Total Personal Income in Peru, International Studies in Economics (Iowa State University, 1968).
Buchanan, James M., Public Finance in Democratic Process: Fiscal Institutions and the Individual Choice (University of North Carolina Press, 1967).
Consejo Nacional de Desarrollo, Estudio Sobre Política Fiscal en Argentina (versión preliminar), Programa Conjunto de Tributación, 7 volumes (Buenos Aires, 1967).
Cragg, John G., Arnold C. Harberger, and Peter Mieszkowski, “Empirical Evidence on the Incidence of the Corporation Income Tax,” The Journal of Political Economy, Vol. 75 (December 1967), pp. 811–21.
De Wulf, Luc Henry, “Fiscal Incidence Studies in Developing Countries: Survey and Critique” (preliminary draft, International Monetary Fund, 1973).
Dich, Jørgen S., “On the Possibility of Measuring the Distribution of Personal Income,” The Review of Income and Wealth, Series 16 (September 1970), pp. 265–72.
Due, John F., Indirect Taxation in Developing Economies: The Role and Structure of Customs Duties, Excises, and Sales Taxes (Baltimore, 1970).
Fishlow, Albert, “Brazilian Size Distribution of Income,” American Economic Association, Papers and Proceedings of the Eighty-Fourth Annual Meeting (The American Economic Review, Vol. LXII, May 1972), pp. 391–402.
Gillis, Stephen Malcolm, “Sales Taxation in a Developing Economy: The Chilean Case” (unpublished doctoral dissertation, University of Illinois, 1968).
Herschel, Federico Julio, Comment on Richard A. Musgrave’s “Estimating the Distribution of the Tax Burden,” in Problems of Tax Administration in Latin America: Papers and Proceedings of a Conference Held in Buenos Aires, Argentina, October 1961 (Baltimore, 1965), pp. 76–90.
- Search Google Scholar
- Export Citation
)| false Comment on Richard A. Musgrave’s “ Herschel, Federico Julio, Estimating the Distribution of the Tax Burden,” in Problems of Tax Administration in Latin America: Papers and Proceedings of a Conference Held in Buenos Aires, Argentina, October 1961( Baltimore, 1965), pp. 76– 90.
Hunt, Shane, “Distribution, Growth, and Government Economic Behavior in Peru,” Chapter 11 in Government and Economic Development, ed. by Gustav Ranis (Yale University Press, 1971), pp. 374–416.
Kaldor, Nicolas, “Economic Problems of Chile” (written in 1956), Chapter 21 in Essays on Economic Policy, Vol. II (London, 1964), pp. 233–87.
Krzyzaniak, Marian, and Richard A. Musgrave, The Shifting of the Corporation Income Tax: An Empirical Study of Its Short-Run Effect upon the Rate of Return (Baltimore, 1963).
Kuznets, Simon, “Quantitative Aspects of the Economic Growth of Nations: VIII, Distribution of Income by Size,” Economic Development and Cultural Change, Vol. XI, Part II (January 1963), pp. 1–29.
Laumas, Gurcharan S., “The Shifting of the Corporation Income Tax—A Study with Reference to Indian Corporations,” Public Finance, Vol. XXI (1966), pp. 462–73.
Levin, Jonathan, “The Effects of Economic Development on the Base of a Sales Tax: A Case Study of Colombia,” Staff Papers, Vol. XV (1968), pp. 30–101.
McLure, Charles E., Jr. (1971), “The Incidence of Taxation in Colombia,” in Fiscal Reform for Colombia: Final Report and Staff Papers of the Colombian Commission on Tax Reform, ed. by Malcolm Gillis (Harvard University, 1971), pp. 239–66.
McLure, Charles E., Jr. (1972), “The Distribution of Income and Tax Incidence in Panama, 1969,” Program of Development Studies, Paper No. 36 (Rice University, 1972).
Meerman, Jacob, “Fiscal Incidence in Empirical Studies in Income Distribution in Poor Countries,” U. S. Agency for International Development, Discussion Paper No. 25 (Washington, June 1972).
Musgrave, Richard A., “Estimating the Distribution of the Tax Burden,” Chapter 2 in Problems of Tax Administration in Latin America: Papers and Proceedings of a Conference Held in Buenos Aires, Argentina, October 1961 (Baltimore, 1965), pp. 31–75.
Musgrave, Richard A., J.J. Carroll, L.D. Cook, and L. Frane, “Distribution of Tax Payments by Income Groups: A Case Study for 1948,” National Tax Journal, Vol. IV (1951), pp. 1–53.
Nicholson, J.L., “Redistribution of Income—Notes on Some Problems and Puzzles,” The Review of Income and Wealth, Series 16 (September 1970), pp. 273–78.
Oldman, Oliver, and Daniel Holland, “Measuring Tax Evasion,” Fifth General Assembly of the Inter-American Center of Tax Administrators (Rio de Janeiro, May 1971).
Organización de los Estados Americanos, Secretariat General, La Política Tributaria como Instrumento de Desarrollo (Washington, 1973).
Prest, Alan R., “The Budget and Interpersonal Distribution,” in The Budget and the Distribution of National Income, International Institute of Public Finance (York, 1968), pp. 80–98.
Radhu, Ghulam Mohammed, “The Relation of Indirect Tax Changes to Price Changes in Pakistan,” The Pakistan Development Review, Vol. V (1965), pp. 54–63.
Rao, V. Ganapathi, and K.S. Hanumanta Rao, “The Incidence of the Corporate Income Tax in the Short-Run: The Case of Indian Corporations,” Public Finance, Vol. XXVI (1971), pp. 586–606.
Recktenwald, Horst Claus, Tax Incidence and Income Redistribution: An Introduction (Wayne State University Press, Detroit, 1971).
Roskamp, Karl W., “The Distribution of Tax Burden in a Rapidly Growing Economy: West Germany in 1950,” National Tax Journal, Vol. XVI (1963), pp. 20–35.
Sahota, Gian S., “The Distribution of the Tax Burden among Different Education Classes in Brazil,” Economic Development and Cultural Change, Vol. 19 (April 1971), pp. 438–60.
Sahota, Gian S., “Public Expenditures and Income Distribution in Panama,” U.S. Agency for International Development (mimeographed, Panama City, August 1972).
Schultze, Charles L., Edward R. Fried, Alice M. Rivlin, and Nancy H. Teeters, Setting National Priorities: The 1973 Budget (The Brookings Institution, Washington, 1972).
Schydlowsky, David M., Comments on Shane Hunt’s “Distribution, Growth, and Government Behavior in Peru,” in Government and Economic Development, ed. by Gustav Ranis (Yale University Press, 1971), pp. 416–28.
Simons, Henry C. Personal Income Taxation: The Definition of Income as a Problem of Fiscal Policy (University of Chicago Press, 1938).
Smith, R. Stafford, Local Income Taxes: Economic Effects and Equity, Institute of Governmental Studies (University of California, Berkeley, 1972).
Tanzi, Vito, “International Tax Burdens,” in Taxation: A Radical Approach—A Reassessment of the High Level of British Taxation and the Scope for Its Reduction, Institute of Economic Affairs (London, 1970), pp. 1–49.
Taylor, Milton C., and others, Fiscal Survey of Colombia, Joint Tax Program of the Organization of American States and the Inter-American Development Bank (Baltimore, 1965).
Urrutia Montoya, Miguel, and Clara Elsa de Sandoval, “Política Fiscal y Distribución del Ingreso en Colombia,” Revista del Banco de la República (Bogotá), Vol. XLIV (1971), pp. 1072–87.
Wallich, Henry C., and John H. Adler, Public Finance in a Developing Country: El Salvador—A Case Study (Harvard University Press, 1951).
Webb, Richard C., (1972 a), The Distribution of Income in Peru, Woodrow Wilson School of Public and International Affairs, Discussion Paper No. 26 (Princeton University, September 1972).
Webb, Richard C. (1972 b), Tax Policy and the Incidence of Taxation in Peru, Woodrow Wilson School of Public and International Affairs, Discussion Paper No. 27 (Princeton University, September 1972).
Weisskoff, Richard, “Income Distribution and Economic Growth in Puerto Rico, Argentina, and Mexico,” The Review of Income and Wealth, Series 16 (December 1970), pp. 303–32.
Mr. Bird, Chief of the Tax Policy Division of the Fiscal Affairs Department, is a graduate of Dalhousie University (Halifax, Canada) and Columbia University. He has taught at Harvard University and the University of Toronto and has written several books and numerous articles.
Mr. De Wulf, economist in the Tax Policy Division, has degrees from Louvain University (in Belgium) and Clark University (Worcester, Massachusetts). He formerly taught at the American University of Beirut.
This paper was originally presented at the Conference on Equity and Income Distribution in Latin America held at Georgetown University on November 17, 1972. The present version reflects helpful comments from Fuat Andic, Charles McLure, Jacob Meerman, Carl Shoup, and Richard Webb.
References shown in parentheses refer to items listed in the Bibliography, pp. 677–82.