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Tax Evasion and the Rule of Law in Latin America
The Political Culture of Cheating and Compliance in Argentina and Chile
280 pages | 6 x 9 | 2009
ISBN 978-0-271-03562-8 | cloth: $65.00
Paperback edition is not available in the U.S.
“This is a major and innovative contribution to the crucial issue of taxation in Latin America. As the author makes clear, there will hardly be sustainable economic development and strong democracies without a solution to the manifold problems that plague taxation in this region. This book should have strong appeal for a wide range of disciplinary interests.” —Guillermo O’Donnell, University of Notre Dame
“The pervasiveness of tax evasion in Latin America is often taken as a sign of institutional weakness and incomplete state formation. In this innovative and painstakingly researched book, Bergman argues instead that understanding tax evasion requires that we move beyond questions of institutional strength and state capacity to study what are in many ways more difficult questions of culture and norms. According to Bergman’s compelling argument, deep-seated cultural norms explain tax behavior better than the capacity of tax-collecting agencies or the severity of the penalties associated with tax evasion.” —Kent Eaton, University of California, Santa Cruz
“Tax compliance lies at the core of the modern state, yet we don’t know very much about it. We know even less about compliance in developing countries, where tax systems face great demands with scarce resources. This admirable book fills the gap while making a significant contribution to our understanding of taxation and political development in Latin America.” —James E. Mahon, Williams College
Few tasks are as crucial for the future of democracy in Latin America—and, indeed, in other underdeveloped areas of the world—as strengthening the rule of law and reforming the system of taxation.
In this book, Marcelo Bergman shows how success in getting citizens to pay their taxes is related intimately to the social norms that undergird the rule of law. The threat of legal sanctions is itself insufficient to motivate compliance, he argues. That kind of deterrence works best when citizens already have other reasons to want to comply, based on their beliefs about what is fair and about how their fellow citizens are behaving. The problem of "free riding," which arises when cheaters can count on enough suckers to pay their taxes so they can avoid doing so and still benefit from the governments supply of public goods, cannot be reversed just by stringent law, because the success of governmental enforcement ultimately depends on the social equilibrium that predominates in each country. Culture and state effectiveness are inherently linked.
Using a wealth of new data drawn from his own multidimensional research involving game theory, statistical models, surveys, and simulations, Bergman compares Argentina and Chile to show how, in two societies that otherwise share much in common, the differing traditions of rule of law explain why so many citizens evade paying taxes in Argentina—and why, in Chile, most citizens comply with the law. In the concluding chapter, he draws implications for public policy from the empirical findings and generalizes his argument to other societies in Africa, Asia, and Eastern Europe.
Marcelo Bergman is Associate Professor in the Department of Legal Studies at CIDE in Mexico City and the director of PESED (Program for the Study of Security and the Rule of Law). He has served as a consultant to tax administrations in Argentina, Chile, and Mexico.
Contents
List of Figures and Tables
Preface and Acknowledgments
Introduction
1. Compliance and Enforcement
2. Measuring Tax Compliance in Chile and Argentina
3. Taxpayers' Perceptions of Government Enforcement
4. General Deterrence: Impunity and Sanctions in Taxation
5. Specific Deterrence and Its Effects on Individual Compliance
6. The Role of Trust, Reciprocity, and Solidarity in Tax Compliance
7. Social Mechanisms in Tax Evasion and Tax Compliance
Conclusion: Tax Compliance and the Law
Appendix A: On the Data
Appendix B: A Game Theory Approach to the Logic of Tax Compliance
Appendix C: A Simulative Game: The Effects of Enforcement
Appendix D: The State, the Law, and the Rule of Law
References
Index