NCPA - National Center for Policy Analysis

Tax Revolt In Argentine Province

March 10, 2000

Argentina has long been synonymous with high taxes and unchecked public spending. Four fiscal packages enacted between 1995 and 1999 combined real tax increases with promises of future spending limits. Yet in the past 10 years government expenditures doubled. And the public-sector debt grew by $66 billion despite revenues from privatization of almost all government-owned enterprises.

But the newly-elected governor of the province of Cordoba, Jose Manuel de la Sota, recently implemented supply-side policies. While the federal government was raising taxes to raise revenues, he began cutting taxes to raise revenues.

  • De la Sota slashed provincial tax rates by 30 percent and called for an amnesty for taxpayers in arrears.
  • As a result, the province's tax revenues reached $62.3 million in January -- an increase of 5.2 percent over the same month last year.
  • Over the same period, sales tax revenues grew by 21 percent.
  • The province's tax-evasion rate, once at 50 percent, has now sunk to about 22 percent.

When the state's debt, left by previous administrations, was discovered to be $3.5 billion, de la Sota immediately announced a plan to privatize state-owned utilities, distribution systems, its bank and the lottery system.

The national government's economic team is concerned that these successes will show up its own shortcomings. International Monetary Fund officials have also reportedly said they do not believe in this method to increase revenues when asked whether this "mania" could spread to other provinces.

Observers say the IMF has reason to worry. Other provinces are said to be watching the bold Cordoba "experiment" with increasing interest.

Source: Martin Krause (Eseade Graduate School, Buenos Aires), "Supply-Side Economics Comes to Cordoba, and Scores," Wall Street Journal, March 10, 2000.


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