Economic and institutional determinants of tax effort in Latin America

This paper examines the impact of economic, social and institutional variables on the tax burden and the tax effort of 18 Latin American countries from 1975 to 2007. The findings confirm the importance of the traditional determinants of tax revenues in the region, including the level of national development, mining and manufacturing specialization, and capital investments. In addition, however, we also find a positive effect of membership in the regional block for MERCOSUR countries, and a negative effect of membership in other trade blocks. Finally, we show the important role of institutional factors, and find that public perceptions of civil and political liberties affect both tax collection and tax revenues. The study concludes that countries in the region continue to have tax burdens below their potential due to their macroeconomic structure, although there has been a general improvement since 1975.