Those that consider taxes as the enemies of growth and individual liberty maintain that the lower the taxes, the better. Others believe that because taxes finance public spending, they can improve the lives of citizens and help solve many of a country’s social problems. There is no question that tax levels can be too high or too  low, and views about the “optimal” level of taxation have changed over the years.  Levels that would have been considered high a half century ago are now no longer considered sufficient.

In “Taxation and Equitable Economic Development: A Historical Note,” Vito Tanzi, former director of the Fiscal Affairs Department of the International Monetary Fund, explores in historical perspective the issue of the desirable level of taxation. Tanzi discusses how the tax systems of most Latin American countries have changed over the last half-century and the extent to which changes in the levels and the structures of those systems offer positive or disappointing results.

Tanzi argues that while there have been significant changes in the tax structures of most Latin American countries, for the most part taxes have not become progressive enough to make a contribution to reducing income inequality.

The paper emphasizes that higher taxes are especially desirable when governments can use the higher revenue well. This, unfortunately, is not always the case. The paper concludes that a low level of taxation in a country is not, in and of itself, an indication that higher taxes would be desirable.