Effectiveness of Tax Collection, Tax Equity, and Business Competitiveness: A Comparative Analysis of Tax Systems in Latin America

Abstract

Latin American tax systems are simultaneously asked to do three things that often pull in opposite directions: raise adequate and stable revenue, redistribute income in the most unequal region in the world, and remain attractive to firms and investors. This paper develops an integrated, indicator-based framework to compare how fourteen Latin American countries perform along these three dimensions—collection effectiveness, tax equity, and business competitiveness—using harmonised data compiled from OECD/ECLAC/CIAT/IDB Revenue Statistics, ECLAC fiscal-panorama estimates, and firm-level tax-administration indicators for a common 2023–2024 benchmark. We construct three composite indices through min–max normalisation, examine their pairwise associations, and derive a country typology using Ward hierarchical clustering. Three findings stand out. First, collection effectiveness and tax equity are strong complements (r = 0.78): countries that mobilise more revenue also redistribute more, because both depend on the same under-developed direct-tax capacity. Second, business competitiveness—proxied by compliance time and the total tax-and-contribution rate on firms—is mildly and negatively associated with the other two pillars (r = −0.36 and −0.22), indicating a real but moderate policy tension rather than an insurmountable trade-off. Third, the region splits into four archetypes—low-mobilisation/business-light systems, a high-burden low-yield outlier, high-mobilisation/high-burden systems, and a balanced-competitive group led by Uruguay, Chile and Costa Rica—each facing a distinct reform frontier. The results imply that the region's central fiscal problem is not an equity–efficiency trade-off per se but a shared deficit in progressive direct taxation, high informality, and administrative complexity that erodes all three objectives at once. We discuss reform priorities, including Brazil's 2023 consumption-tax overhaul, and the conditions under which broadening the personal-income-tax base can advance effectiveness and equity without undermining competitiveness.