Determinants of Latin America’s Overreliance on International Trade Taxation

Abstract

This paper investigates the determinants of Latin America’s overreliance on international trade taxation as a source of governmental revenue. Latin America, more than any other region of the world relies on international trade taxation as a source for governmental revenue. A number of hypotheses are tested including ordinary least squares regressions of the effect of income inequality on the extent to which a country relies on international trade taxation as a source of governmental revenue. It is hypothesized that counties with high levels of income inequality have difficulty collecting income taxes and accordingly disproportionately rely on international trade taxation. The analysis indicates that there is a statistically significant correlation between Latin America’s high levels of income inequality and its reliance on international trade taxation as a source of governmental revenue. As a consequence of Latin America’s excessive reliance on international trade taxes further trade liberalization in the region will be unlikely.