Abstract

This paper provides an evaluation of the Paraguayan tax reform law of 1991. In general, it is found that at a strictly statutory level the reform law represents an important advance in Paraguay's public finances. The law simplifies the system while eliminating important sources of inefficiency and distortion. At the same time, however, the reforms to date have not been successful in enabling the state to realize the revenues necessary to cover rising demands for public goods and services. The result has been that government budget deficits have increased in size and frequency. A number of alternative (second-stage) proposals for additional reforms are considered. It is argued that the Paraguayan case holds lessons for other economies undergoing transitions to political and economic openness.

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