The Tax Burden Calculation

A critical view of the simplistic methods used in calculating the tax burden that supports an economy.

Wednesday, January 5, 2011

When analyzing a tax reform proposal, the first argument considered is what is the percentage of taxes collected by the state in relation to the Gross Domestic Product (GDP) of the country.

Juan Carlos Hidalgo, on his blog at Elfinancierocr.com, shows with solid arguments, the fallacy of comparing, without thorough analysis, the public figures of the ratio of tax revenue to GDP, which leads to erroneous conclusions which usually hide the main problem: the spending inefficiency demonstrated by the state with the money collected through taxes.

Hidalgo´s analysis relates to Costa Rica, but the concept is transferable to all Central American countries.

More on this topic

Tax Burden is Growing in Central America

August 2017

The tax burden grew from 13.4% in 2013 to 14% in 2016, both due to the delayed effect of the tax reforms in Honduras and Nicaragua, as well as better management on the part of tax entities in Guatemala and Panama.

From the Regional Economic Report (IER) 2016-2017: Opportunities and challenges for Central America, by the SIECA:

A New Fiscal Agenda for Guatemala

January 2016

In the opinion of the Central American Institute of Fiscal Studies, the only way to consolidate public finances in a sustainable way is to reduce tax breaks and increase tax collections.

From a statement issued by the Central Institute for Fiscal Studies (Icefi):

The Central American Institute for Fiscal Studies (Icefi) has proposed as a fiscal agenda for development: meeting the public demand for integrity and transparency; effective, efficient and effectual public spending as a tool for inclusive and democratic development; and financial viability with taxation being part of democratic accountability.

International Bureaucrat Promotes Greater Taxation

April 2011

An international bureaucrat, whose salary is exempt from paying taxes, is one of the main supporters of tax increases in Costa Rica.

Alberto Barreix, tax expert from the Inter-American Development Bank (IDB), boasts that he has supported more than 50 tax rises in various countries.

Fiscal Policies and Systems

March 2010

High taxes and evasion eroding economic growth in Latin America and the Caribbean.

New IDB study says governments must simplify tax systems and reduce evasion

Complex tax systems and widespread evasion are distorting investment decisions by companies in Latin America and the Caribbean, reducing the efficiency of markets and preventing governments from investing in infrastructure, education and other key public goods.

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