On December 9th, 2024, the OECD published a report titled “Latin American Economic Outlook 2024: Financing Sustainable Development” (LAEO), and it contains a scathing assessment of fiscal policies in the region. As stated by the Organization, tax revenues of Latin American and Caribbean (LAC) countries averaged 21.5% of GDP in 2022, which was considerably lower than the OECD average of 34%. LAC countries rely heavily on indirect taxes and too little on personal income taxes, which is a hallmark of regressive tax systems. This is a recipe for high levels of inequality in important LatAm jurisdictions like Peru, Mexico, Colombia, Brazil and Chile, where the richest 10% capture an aggregate of 60% of national income.
According to the OECD, inefficient tax expenditures are a key concern in the tax policies of LAC countries. Poorly designed tax incentives can strain the public budget, pushing governments further into debt (and having to service that debt). In light of Pillar 2 and its impacts on certain types of local tax incentives (e.g., tax holidays, CIT exemptions), Latin American countries should revisit their tax expenditure design choices, focusing on whether they deliver the welfare gains that their proponents often advertise.
This LATPF Report reviews the LAEO and the Latin American section of an index developed by the Tax Expenditures Lab in its version of December 3rd, 2024, titled “The Global Tax Expenditures Transparency Index” (GTETI).
