Rethinking Taxation in Latin America by Jorge Atria Constantin Groll & Maria Fernanda Valdés

Author:Jorge Atria, Constantin Groll & Maria Fernanda Valdés
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

2.2 Non-Renewable Natural Resources in Latin America: Specific Implications

Latin American countries have traditionally been a major world supplier of energy and mineral resources. In 2015 the region contributed the 11.2% of the world production of oil, and it possesses nearly 20% of the world’s proven reserves. Meanwhile, Chile and Peru jointly accounted for the 39% of the world production of copper.10 Particularly in the group of analyzed countries, with the exception of Mexico , exports baskets are dominated by mineral or oil products. Remarkably, this is the case for Chile , Colombia , Ecuador , Peru and Venezuela where, according to data from UN-COMTRADE at the 4-digit level Harmonized System for the year 2014, such products make up from 40% to nearly 80% of total exports.

Among other events, the rise in international demand caused by the emergence of China in the world markets favored a significant growth in the value of exports of various Lati-American countries. This contributed to the improvement of their macroeconomic performance and their fiscal position. Although this cycle of prosperity was drastically interrupted by the global financial crisis, in subsequent years the prices of these products demonstrated a remarkable recovery that lasted during 2011 and part of 2012. The slowdown of the world economy since 2013, among other factors, has led to a correction in the price level and a moderation (and gradual reversion) of the upward trend observed during the last decade.

In countries whose production structure is dominated by NRR, the usual challenges of fiscal policy are generated by the intrinsic characteristics of these commodities. In line with what has been discussed in the first section of this chapter, the volatility and unpredictability of commodity prices can complicate fiscal policy, making it difficult to determine an appropriate and sustainable level of public spending. In addition, because natural resource reserves are finite this means that fiscal policy design must also provide for considerations of intergenerational equity.

Together with these characteristics, there are other factors which complicate the assignment of revenue from natural resources between different levels of government of the same country. One of these is the great geographic concentration of the reservoirs, and therefore of the tax base.11 Oils and minerals are often discovered and exploited in sparsely populated areas and this potentially creates huge horizontal imbalances if rents are assigned exclusively, or mostly, to subnational governments. Large imbalances stimulate political pressures and provide theoretical grounds for national equalization of these resources (Brosio & Jiménez, 2012).12

Countries specialized in NRR are, however, far from being an homogeneous group. There are significant differences with respect to the non-renewable product in which they have specialized. These include: the importance of this product in the economy, its price variation, the size of the resource reserves or deposits, the fiscal impact of the revenue from its exploitation, the degree of diversification of the tax structure , the composition of expenditure, and the level of debt. All these characteristics are of great importance for the design of an appropriate fiscal policy. These

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