World Bank Tax Advice for Latin America:
How to Obstruct Sustained and Equitable Development
J. Michael McGuire, Ph.D.
University of the Incarnate Word
Taxation is critical for satisfying basic needs and generating an inclusive development process that benefits the poor as well as the rich in Latin America. The World Bank offers tax advice to developing countries, and it pressures countries to follow that advice by making it a condition for receiving development loans at preferential interest rates. This paper argues that in response to a short-term financial crisis, the World Bank recommended a regressive tax system that raises revenue quickly, but, in the long-run slows the satisfaction of basic needs and obstructs the implementation of an inclusive development process. The article concludes with recommendations for an alternative tax policy.
Approximately one in four people in Latin America live on less than $2 per day. At the same time, Latin America is the most unequal region of the world (McGuire 2005, pp. 7, 15-16). This poverty and inequality lead to domination, exploitation and exclusion of the poor from the development process.
The best solution to this disaster includes a development process that benefits the population as a whole, not just a privileged few. Instituting an inclusive development process requires satisfying the basic needs such as health and education that enhance the productivity of the poor. Enhanced productivity generates new opportunities to participate in the production process and to earn the income necessary to live a full and dignified life. The nature, implementation, advantages and feasibility of a Basic Needs Approach to Development are treated more fully in the literature (Hicks, 1979; McGuire, 2005; Stewart, 1985; Streeten, Burki, Haq, Hicks, Stewart, 1981).
Taxation is critical for satisfying basic needs and generating an inclusive development process. First, taxation raises the revenue necessary to pay for basic goods and services. Second, progressive taxation (meaning that the rich pay a relatively high percentage of their incomes in taxes) speeds the satisfaction of basic needs. Regressive taxation that falls heavily on low-income persons slows the satisfaction of those needs. Taxing an extremely poor family in order to build a new school, for example, tends to leave the children of that family more hungry and less able to learn.
ΚΚΚΚ The World Bank (WB) makes development loans to low-income countries at preferential interest rates. In order to qualify for those loans, the countries must meet a range of conditions. Beginning in the 1980s, the WB began developing advice on taxation and making that advice an ever more heavily stressed condition that must be