Taxation, redistribution, and models of fiscal politics in Latin America

Abstract

Latin American fiscal policy presents a stark challenge to standard analytical models of political economy. Most importantly, since about 1990 the combination of drastic inequality, electoral democracy, and weak redistributive efforts appears to contradict the economists’ workhorse, the median-voter model, which predicts significant fiscal redistribution under these conditions (Meltzer and Richard, 1981; Profeta and Scabrosetti, 2008: 70–71; Huber and Stephens, 2012). However, recent innovations – a “basic universalism” in social welfare and a couple of progressive tax reforms – might be thought to bring the region more in line with the model's predictions, or perhaps those of other approaches. In short, this field could benefit from theoretical clarification. This paper evaluates the performance of median-voter and several other models in an attempt to explain longstanding differences in fiscal policy. It compares Latin America with other world regions, first and mainly, before examining variation across the region. It then turns its attention to the new developments in policy.