Friday, May 16, 2008

Fiscal policy efficiency in Latin America (I)

According to Latin America economic outlook 2008,tax and transfers reduce inequality by 15 Gini points in OECD countries while in Latin America, it reduces the equivalent of just 2 gini points. On the other side, fiscal induced reduction in inequality is eight time smaller in Latin America than in Europe. These are some of the key ideas mentioned recently in an article signed by Javier Santiso and Pablo Zoido, in the magazine The Globalist.(April 2008)-
To give a better insight of the issue let considers some additional statistics, ( ,Pablo Oregon 2008) Buenos Aires with 14 millions of inhabitants has 365000 public employees , whereas New York wit almost 20 million of inhabitants has 270000 public employees .Argentina as a whole has 1,5 million of public employees, Chile has 185000 public employees . Google (our boss in this blog),does not need more than 11000 to run such a giant internet services provider.
The efficiency of fiscal policy ,is undermined because of the level of rent it needs to collect ,just to support those who have captured the state for their own purposes. Thus, Brazil with a tax burden of 37% as a share of GDP, has currently a public sector which is increasing at a faster speed than ever ( more than a thousand a month) . Therefore very much of those taxes, are not designed to solve social problems, but to finance the new bureaucracy which has nothing to do with the effectiveness of any policy design. In fact Mexico with a tax burden of 15% as a share o GDP, has the same low level as Brazil in some key social indicators. It follows that perhaps half of tax collection in Brazil, is just to finance bureaucracy.
Tax collection is not the only variable on the equation to solve poverty and inequality. It is also important the efficiency of social programs which requires to be better focused ,but also better complement by a staff capable of doing their jobs with low transaction cost (it means low bureaucracy level).The state has become so relevant to provide public employment, that it has distorted its real meaning , which is to support those who are in danger of being left behind, not to providing them exclusively with assistance, but with the proper tools to overcome their constraints with creativity, imagination, self assurance.