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An uneven playing field: inequality, human rights and taxation

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The Latin American experience shows that progressive tax systems are crucial to reducing inequality. A contribution to the openGlobalRights debate, Economic Inequality and Human Rights. Español

Juan Pablo Jiménez
24 November 2015

In the past few years, the debate around inequality has resurged strongly at a global level. Although many have acknowledged that extreme inequality has deep implications for human rights, there is controversy surrounding how the search for greater equality should be inserted into the human rights agenda.

In Latin American countries, there has been a long-standing debate around inequality fueled by deep and persistent social and economic disparities. Latin America continues to be the most unequal region on the planet, and high concentrations of income and wealth among a few families is a distinctive trait. As ECLAC has stressed, this characteristic has deep historical roots due to a pattern of development that has perpetuated socioeconomic disparities based on racial and ethnic origins, gender and social class.

This debate has sparked recent initiatives seeking to align fiscal policy with human rights principles. These initiatives have prioritized, up until now, confronting policies that cut public spending (health, social programs, education), more than policies around taxation.

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Demotix/Juan Manuel Barrero Bueno (All rights reserved)

Latin American tax systems largely rely on indirect consumption taxes, which tend to have a regressive distributive impact .


Overall there is far less consensus about how tax policy can be included in the human rights agenda. The questions that arise are not negligible: for example, should the priority be the search for “vertical equity”, meaning that those who have more pay more? Or should the focus be on “horizontal equity”, where those who have the same income are treated the same way, whether this income comes from wages or capital? Also, what principle should govern the search for more just tax policy: that of “ability-to-pay”, or that of “benefit”, where a service should be financed by the individuals who most use it?

A lack of rigorous data makes it difficult to compare and analyze the level of concentration of income and wealth in Latin America, in relation to other regions. However, one alternative that has earned increasing attention in the past few years is the incorporation of data stemming from tax records that would complement missing information about high income levels. Even though this line of work is still very new, the information available does confirm high concentrations of income in the region.

Graph 1. Share of total income of the richest 1% (as percentage of GDP)

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Source: Jiménez, J.P. (2015) based on The World Top Incomes Database. For Chile, the data was taken from the work of Fairfield and Jorrat (2014). For Ecuador, from Cano (2014). For Mexico, from Campos, Chavez and Esquivel (2014), and for Brazil, from De Souza, Medeiros and Castro (2014).

The distributive impact of fiscal policy in Latin America is weak. While there is some general consensus around the role public spending plays in reducing inequality gaps, there is much less agreement and awareness about the role of tax policies.

This is paradoxical, since the high concentration of wealth and income seems to require making full use of the redistributive effect of tax policy, with a particular role for taxes associated with the ability-to-pay principle (vertical equity), as well as equal tax treatment for those with equivalent incomes regardless of their origin (horizontal equity). Indeed, distinguishing between these two equity principles is essential when approaching these issues from a human rights perspective. Although issues of horizontal equity tend to be more firmly incorporated into the human rights agenda, in the past few years the search for greater vertical equity has become more prominent in the inequality debate in this field.

Latin American tax systems have played only a modestly redistributive role, and have even been largely regressive. Latin American tax systems have played only a modestly redistributive role, and have even been largely regressive. This is due to tax systems being skewed towards wages rather than capital, high levels of tax evasion, tax exemptions or a greater ability to avoid tax responsibilities, or because the richest individuals are not taxed in accordance with their level of income or wealth. In some cases, the wealthy pay comparatively less taxes than other lower income taxpayers. Additionally, tax systems largely rely on indirect consumption taxes, which tend to have a regressive distributive impact while direct taxation on property has been structurally weak in the region.

These factors indicate that there is considerable space to widen the tax system’s distributive capacity by way of strengthening personal income and property taxes. In light of the theory and practice of taxation, and the current debates on fiscal policy and human rights, essential first steps towards placing economic inequality on the human rights agenda include creating an updated map of inequality and the concentration of income and wealth. This would complement the scant indicators currently available with new sources of information. In addition, we need a better diagnostic of the capacity of the current tax system and its impact in terms of efficiency and horizontal and vertical equity.

The book, “Inequality, income concentration and taxation on wealth”, recently published by ECLAC, aims to provide input and information to the debate on these topics, which are central to the relationship between fiscal policy, inequality and income distribution.

Both to achieve more distributive tax systems, and to forge closer links between tax policy and human rights, it is necessary to make available greater information about who is contributing to the public coffers—and how. Only then can we truly improve citizen participation and widen the region’s democratic options.

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