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The Roots of Brazil's Heavy Taxation

Published online by Cambridge University Press:  27 July 2015

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Abstract

Latin America is widely known as a low-tax region, but Brazil defies that description with a tax burden almost double the regional average. Though longstanding, Brazil’s position atop the tax burden ranking is not a historical constant. As recently as the early 1950s three other countries, Argentina, Chile and Uruguay, had similar or even heavier burdens. However, by the early 1980s Brazil had emerged as the most heavily taxed country in Latin America, and subsequent decades reinforced that status. This article seeks to uncover the roots of Brazil’s heavy taxation by examining the process through which it rose to the top of the regional ranking and managed to stay there. It emphasises two variables, the social class bases of public sector growth and the degree of support for democracy among key political actors. Despite changing over time, these variables have consistently interacted in ways that favour rising taxation.

Spanish abstract

Latinoamérica es conocida ampliamente como una región de impuestos bajos, pero Brasil desafía esta descripción con una carga impositiva de casi el doble del promedio regional. Aunque inicialmente no se encontraba en el en lo más alto del ranking regional, a principios de los años 1980 Brasil emergió como el país de mayores impuestos en América Latina. Este artículo busca explicar la trayectoria de Brasil al examinar el proceso por el cual superó a Argentina, Chile y Uruguay como el país con más carga impositiva y las razones por las que los impuestos continuaron su expansión en las dos últimas décadas. El estudio hace énfasis en dos variables: las clases sociales detrás del crecimiento del sector público y el grado de apoyo a la democracia de parte de actores políticos clave. Estas variables han interactuado de formas diversas en diferentes periodos, aunque han contribuido sistemáticamente a la elevación tributaria.

Portuguese abstract

A América Latina é amplamente conhecida por ser uma região de baixos impostos. No entanto, com uma carga tributária de quase o dobro da média regional, o Brasil desafia esta descrição. Embora inicialmente não figurasse no topo do ranking regional, no início da década de 1980 o Brasil emergiu como o país onde se aplicam os maiores impostos na América Latina. Este artigo busca explicar a trajetória brasileira examinando o processo através do qual o país ultrapassou a Argentina, o Chile e o Uruguai para tornar-se aquele com a maior carga tributária; e os motivos pelos quais os impostos continuaram aumentando nas últimas duas décadas. Enfatizam-se duas variáveis: as bases classistas do crescimento do setor público e o nível de apoio à democracia entre importantes atores políticos. Estas variáveis interagem de diversas maneiras em diferentes períodos, mas têm sistematicamente contribuído para o aumento de impostos.

Keywords

BraziltaxationdemocracyredistributionBrasilimpuestosdemocraciaredistribuciónBrasiltributaçãodemocraciaredistribuição
Type
Research Article
Information
Journal of Latin American Studies , Volume 47 , Issue 4 , November 2015 , pp. 749 - 779
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Copyright
Copyright © Cambridge University Press 2015 

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References

1 Unless otherwise noted, tax data are from CEPALSTAT, the database of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), and the Latin America and the Caribbean Fiscal Burden Database, compiled by the Inter-American Centre of Tax Administration (CIAT) and the Inter-American Development Bank (IDB). The OECD figure is from OECD, Revenue Statistics, 1965–2012, 2013.

2 Marcus André Melo, ‘The Political Viability of Progressive Tax Reforms in Brazil’, seminar on Taxation and Equality in Latin America, Woodrow Wilson Center, 2012.

3 It does not address the question of whether Brazil's tax burden is beneficial, which would require a different research design.

4 Marcus André Melo, Carlos Pereira and Saulo Souza, ‘The Political Economy of Fiscal Reform in Brazil: The Rationale for the Suboptimal Equilibrium’, IDB Working Paper 117, 2010; José Roberto Afonso, ‘A economia política da reforma tributária: o caso Brasileiro’, Woodrow Wilson Center, 2013.

5 In other words, the case selection constitutes a ‘most-similar systems’ comparison. See Adam Przeworski and Henry Teune, The Logic of Comparative Social Inquiry (New York: Wiley-Interscience, 1970).

6 See, for example, Pessino, Carola and Fenochietto, Ricardo, ‘Determining Countries’ Tax Effort’, Revista de Economía Política, 195: 4 (2010), pp. 65–87Google Scholar, and Timothy Besley and Torsten Persson, ‘Taxation and Development’, Centre for Economic Policy Research, 2013.

7 James Mahoney and Dietrich Rueschemeyer, ‘Comparative Historical Analysis: Achievements and Agendas’, in Mahoney and Rueschemeyer (eds.), Comparative Historical Analysis in the Social Sciences (Cambridge: Cambridge University Press, 2003), pp. 3–38.

8 The term ‘popular’ as used here encompasses both manual labourers and some white-collar workers. This usage, while not universal, is fairly conventional in the study of Latin American politics. For example, see David Collier (ed.), The New Authoritarianism in Latin America (Princeton, NJ: Princeton University Press, 1979) and, more recently, Marcus J. Kurtz, Latin American State Building in Comparative Perspective: Social Foundations of Institutional Order (Cambridge: Cambridge University Press, 2013).

9 IBGE, Estatísticas do Século XX.

10 Data are from World Bank, ‘Current Economic Position and Prospects of Brazil,’ 1965, Annex 3, pp. 22 and 26, for the earlier period, and CEPALSTAT for the later period.

11 Ibid.

12 Luigi Bernardi, Alberto Barreix, Anna Marenzi and Paola Profeta (eds.), Tax Systems and Tax Reforms in Latin America (London: Routledge, 2007).

13 See Table 2 for sources.

14 In 2012, for example, four countries had a higher per capita GDP and three were less than 20 per cent below Brazil. See CEPALSTAT.

15 Pessino and Fenochietti, ‘Determining Countries’ Tax Effort’.

16 CEPALSTAT.

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21 Brazil's annual inflation between 2003 and 2012 averaged 6.4 per cent, compared to a regional average of 6.7 per cent, according to CEPALSTAT.

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34 Latinobarómetro.

35 James Alm and Jorge Martínez-Vázquez, ‘Tax Morale and Tax Evasion in Latin America’, Andrew Young School of Public Policy, 2007, p. 70; Mexico figure calculated from raw data.

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41 Kenneth M. Roberts, ‘The Politics of Inequality and Redistribution in Latin America's Post-Adjustment Era’, World Institute for Development Economics Research, 2012, p. 6.

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52 Ibid.

53 CEPALSTAT.

54 Meiriane Nunes Amaro, ‘Terceira reforma da previdência: até quando esperar?’, Centro de Estudos da Consultoría do Senado, 2011, p. 20.

55 Fabrício A. de Oliveira, A reforma tributária de 1966 e a acumulação de capital no Brasil (Belo Horizonte: Nossa Terra, 1991); Ricardo Varsano, ‘La reforma tributaria en Brasil: el largo proceso en curso’, IDB, 2003.

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58 Ibid.

59 José Roberto Afonso, ‘Brasil: nuevos acuerdos fiscales’, in Jorge Rodríguez Cabello and Francisco Javier Díaz (eds.), Camino para la reforma: estrategia política de un acuerdo fiscal (Santiago: CIEPLAN, 2013), p. 73.

60 Peter H. Smith, Democracy in Latin America: Political Change in Comparative Perspective, 2nd ed. (Oxford: Oxford University Press, 2011); Scott Mainwaring and Aníbal Pérez-Liñán, Democracies and Dictatorships in Latin America: Emergence, Survival, and Fall (Cambridge: Cambridge University Press, 2013).

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66 Oliveira, A reforma tributária.

67 IBGE, Estatisticas do Século XX.

68 Peter Evans, Dependent Development: The Alliance of Multinational, State, and Local Capital in Brazil (Princeton, NJ: Princeton University Press, 1979).

69 Carmelo Mesa-Lago, Social Security in Latin America: Pressure Groups, Stratification, and Inequality (Pittsburgh, PA: University of Pittsburgh Press, 1978).

70 World Bank, ‘Current Economic Position,’ Annex 3, p. 9.

71 Carmelo Mesa-Lago, Ascent to Bankruptcy: Financing Social Security in Latin America (Pittsburgh, PA: University of Pittsburgh Press. 1989), p. 26.

72 Reliable social security spending figures are lacking for this period, but in 1950–5 Argentine social security revenues were 6–7 per cent of GDP, according to Cetrángolo and Gómez Sabaini, ‘Política tributária’, p. 27. This figure is similar to Chile and Uruguay during the same period and suggests a far higher level of spending than in Brazil.

73 Calculated using union membership data from Guillermo O'Donnell, Modernisation and Bureaucratic Authoritarianism, 2nd ed. (Berkeley, CA: University of California, 1979), p. 40, and labour force figures from Base de Datos de Historia Económica de América Latina Montevideo – Oxford (MOxLAD), accessed at: http://moxlad.fcs.edu.uy/.

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81 Kathryn Sikkink, Ideas and Institutions: Developmentalism in Brazil and Argentina (Ithaca, NY: Cornell University Press, 1991), p. 67.

82 Diniz and Boschi, Empresariado nacional, p. 191; Schneider, Business Politics, p. 112.

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91 ECLAC, Time for Equality, 2010, p. 53.

92 Roberts, ‘The Politics of Inequality’, p. 6.

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94 Sarah Brooks, Social Protection and the Market in Latin America: The Transformation of Social Security Institutions (Cambridge: Cambridge University Press, 2008).

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96 Kurt Weyland, Democracy without Equity: Failures of Reform in Brazil (Pittsburgh, PA: University of Pittsburgh Press, 1996).

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98 Fundação Perçeu Abramo, ‘Densidade sindical e recomposição da classe trabalhadora no Brasil’, 2013, p. 8.

99 Fabio Giambiagi, ‘Dezessete anos de política fiscal no Brasil: 1991–2007’, Texto de Discussão 1309, IPEA, p. 27.

100 ECLAC, Panorama Social de América Latina 2010, p. 167.

101 Giambiagi, ‘Dezessete anos’, p. 35.

102 Mainwaring and Pérez-Liñan, Democracies and Dictatorships, p. 16.

103 Adam Przeworski, Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America (Cambridge: Cambridge University Press, 1991).

104 See, for example, Korpi, The Democratic Class Struggle; Steinmo and Tolbert, ‘Do Institutions Really Matter?’; and Huber and Stephens, Democracy and the Left.

105 Fairfield, Private Wealth and Public Revenue.