No AccessPolicy Research Working Papers25 Jun 2013Raising Revenue with Transaction Taxes in Latin America: Or is it Better to Tax with the Devil You Know?Authors/Editors: Rodrigo SuescunRodrigo Suescunhttps://doi.org/10.1596/1813-9450-3279SectionsAboutPDF (0.3 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:In recent years, various Latin American governments have resorted to taxes on bank debits and financial transactions as alternative ways of raising revenue. Considerable interest has developed in understanding the consequences of such reforms. Suescún constructs a dynamic general equilibrium model to assess the size of distortions and other quantitative implications associated with a transaction tax. The distinctive feature of the model is the non-neutrality property of the tax in the sense that it distorts the structure of relative prices of intermediate transactions, giving rise to tax "pyramidation." The effective tax rate ultimately borne by the economy is shown to depend on the complexity of the transaction structure. Calibrated for Latin America, the model finds that, contrary to existing evidence and conventional wisdom, a transaction tax is not a particularly burdensome levy in terms of economic growth and efficiency costs. The model also shows that if a government can credibly commit itself to an announced two-step reform in which it first uses a transaction tax temporarily and then replaces it with any other conventional tax, this policy will improve economic welfare relative to a tax reform where a consumption tax (or a labor income tax or a capital earnings tax) is exclusively used from the start to raise the required additional revenue. This paper is a product of the Office of the Regional Chief Economist, Latin America and the Caribbean Region. Previous bookNext book FiguresReferencesRecommendedDetailsCited ByНовые Подходы К Налогообложению Финансового Сектора в Свете Мирового Финансового Кризиса (New Approaches to the Taxation of Financial Sector in the Light of the Global Financial Crisis)SSRN Electronic JournalFinancial Transactions Tax: Panacea, Threat or Damp Squib?SSRN Electronic JournalIMF Research Bulletin, June 2006IMF Research Bulletin, Vol.07, No.02 View Published: April 2004 Copyright & Permissions Related RegionsLatin America & CaribbeanRelated CountriesTimor-LesteBrazilColombiaRelated TopicsLaw and DevelopmentMacroeconomics and Economic GrowthPrivate Sector DevelopmentFinance and Financial Sector Development KeywordsADDED TAXCONSUMPTION TAXEXCISE TAXINCOME TAXINCOME TAXESLEVYTAXTAX BASETAX COLLECTIONTAX RATETAX RATESTAX REFORMTAX REFORMSTAX REVENUETAX SYSTEMTAXABLE INCOMETAXATIONTAXESTURNOVER TAXTURNOVER TAXES PDF DownloadLoading ...