Structural determinants of tax revenue in Latin America and the Caribbean, 1990-2009

Abstract

In recent years many studies have been conducted worldwide in order to investigate the structural or long-term determinants of tax revenue (see inter alia Gupta, 2007; Mahdavi, 2007; Profeta and Scabrosetti, 2010). The aim of this study is to extend the empirical literature on this issue by applying standard models to the case of Latin America and the Caribbean. Through panel econometric methodologies, the paper assesses the statistical significance of a number of potential determinants of tax revenue as a share of GDP, using data from 32 Latin American countries over the period 1990-2009. The empirical analysis pays particular attention to examine the relevance of political and historical variables to understand regional differences in tax revenue. The results indicate that, among the variables that exert a statistically significant influence on tax revenue are the following ones: civil liberties, female labor force participation, the age composition of the population, the degree of political stability, the level of education, the population density as well as the size of the shadow economy.