Fiscal Legitimacy, Inequality and Democratic Consolidation In Latin America

Abstract

Latin America suffers from low fiscal legitimacy. In many Latin American countries, fiscal performance and democratic governance are damaged by citizens’ lack of trust and confidence in democratic fiscal institutions. One explanation for this distrust of the government’s fiscal responsibility is that, in contrast to most OECD countries, taxes and transfers play little or no redistributive role in most Latin America states. When taxation fails to deliver and help bridge the gap between the richer and the poorer, the credibility of the fiscal system suffers: poor quality fiscal policy hinders tax revenue, frustrates public expenditure and undermines fiscal and democratic legitimacy. The comparison between Latin American and OECD countries, that we will develop in this paper in the very first section, allow therefore for putting in contrast the achievements and pending progress of the region, focusing in particular on the need for more progressive spending in the region, something achieved by OECD countries, including the Latin ones like Spain or Italy.

Keywords: fiscal legitimacy, fiscal policy, democracy, fiscal space

JEL Classification: H1, O54