Figure 11. Indirect taxes reduce the progressivity of LAC’s tax systems 0.5
Kakwani coefficient
0.4 0.3 0.2 0.1 0.0 -0.1 -0.2
Bolivia
Brazil
Mexico
Direct Taxes
Indirect Taxes
Peru
Uruguay
All Taxes
Source: Lustig and Pessino (2014), Paz Arauco et al. (2014), Higgins and Pereira (2014), Scott (2014), Jaramillo (2014), Bucheli et al. (2014). ©The CEQ Compendium of Indicators presented here is the property of the Tulane Educational Fund and the Inter-American Dialogue. Note: The figure reports the Kakwani index, a measure of progressivity in taxation calculated as the tax concentration coefficient minus the market income Gini coefficient (see Box 3 for income definitions and Box 4 for a discussion on the Kakwani index).
Figure 12. The bottom 10 percent pay a high share of their income in taxes in Bolivia, Brazil and Uruguay 3.5
Ratio of the share of taxes paid to the share of total market income
3.0 2.5 2.0 1.5 1.0 0.5 0.0
1
2
3 Bolivia
4 Brazil
5 6 Market income decile Mexico
7 Peru
8
9
10
Uruguay
Social Gains in the Balance
Source: Lustig and Pessino (2014), Paz Arauco et al. (2014), Higgins and Pereira (2014), Scott (2014), Jaramillo (2014), Bucheli et al.(2014). ©The CEQ Compendium of Indicators presented here is the property of the Tulane Educational Fund and the Inter-American Dialogue. Note: The figure reports the ratio of the share of taxes paid to the share of total market income held by each income decile.
share in Uruguay and 1.5 times in Brazil.28 Interestingly, only individuals at the bottom and top of the income distribution in these two countries pay a higher share of taxes than they collect in market income. In Mexico and Peru, on the other hand, only the top income decile pays a higher proportion of taxes relative to its income, while the bottom 90 percent pays a smaller share. As noted above, these results may be sensitive to the assumptions made in the CEQ studies regarding formal markets in each country.
Direct and indirect transfers: investments in opportunities and human capital Direct cash transfers, including CCTs, represent between 0.4 and 3.7 percent of GDP in the six countries included in this study.29 Direct transfers include conditional and non-conditional cash transfers and non-contributory pensions. While non-contributory pensions are targeted towards the elderly, conditional cash transfers 28 It should be noted that both of these studies assume no evasion of indirect taxes, while the studies for the other countries factor in some degree of tax evasion (see footnote 24). 29 Lustig, Pessino and Scott (2014).
22