Killing me softly: Local termites and fiscal violence in Latin America

Mexico and Brazil have a lot in common. They are the two largest Latin American countries and the continent's main emerging markets. A big difference, however, is that Mexico collects 13 per cent of its GDP in taxes, compared with Brazil's 21 per cent, a figure that hits a record 36 per cent when local taxes and social security contributions are included. In fact, in terms of tax revenues, Mexico and Brazil stand at the two extremes of the region. That much difference can be found between no two other countries in Latin America. They are thus two opposite ends in a region featuring distinctive "fiscal spaces". Yet in spite of their fiscal dissimilarity, both countries are dealing with one and the same problem. Their insufficiencies in terms of generation of public goods are comparable. In this paper, we have attempted to understand the reasons underlying this paradox and to highlight a few of their implications for public policies. The starting assumption is that the very poor quality of public spending in both countries has made it difficult to use expenditure as a true instrument of justice and development and, in the case of Mexico, to justify greater tax collection. Brazil's tax collection stands at levels similar to those of developed countries, but the quality of its expenditure is deficient. For this reason, increasing tax collection is not in itself a solution if expenditure remains poor in quality and is confiscated by the best-organised players. This, we call fiscal violence. It has to do with the economic, political, and trade-union elite's power in their societies to use their privileged position to appropriate expenditure or avoid taxes. The violence to which we are referring is legal; it is sustained by laws that favour the dominant players. This situation is not exclusive to the two countries, nor even to Latin America. Nonetheless, the resilience of these fiscal-violence enclaves at the core of its political systems contributes to the widespread fiscal delegitimisation suffered by Latin America, which ultimately discredits public action and its true transformational capacity.