Public Revenue, Financial Inclusion and Value-Added Tax in Argentina

Abstract

Argentina’s tax-to-GDP ratio ranked at the bottom of worldwide tables of middle-income countries prior to the 2000s. By 2015, Argentina transformed from a low-tax to a high-tax country matching Brazil for the highest tax-to-GDP ratio in the region. No tax expert anticipated this outcome—quite the opposite. A rise in Value-Added Tax (VAT) revenue occurred as overall tax revenue increased, and this trend continued after a period of economic growth ended. This chapter explains how the government engineered this result by way of financial inclusion measures that targeted middle-class Argentines and their inclusion into the formal banking system. As financial inclusion drew more people into the formal banking system, consumers began to use less cash and more credit and debit cards causing more consumption to occur in formal markets (“easily taxed”) and less in informal markets (“less taxed”).