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Debtor Coalitions and Weak Tax Institutions in Latin America: Insights from Argentina and Brazil

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Rethinking Taxation in Latin America

Part of the book series: Latin American Political Economy ((LAPE))

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Abstract

Latin American countries maintained weak tax institutions during the nineteenth century, despite frequent wars, which increased public debt and should have impelled institutional development. But Latin American leaders balked, at the behest of their underlying political coalitions. When net creditors in a country’s credit market are part of the ruling political coalition, they should press governments to diversify taxes and strengthen fiscal institutions to ensure debt service. When net debtors hold political sway, governments should be indifferent to debt servicing, because it can produce an economic gain for coalition members. Case studies of Argentina and Brazil in the aftermath of the War of the Triple Alliance (1864–1870) illustrate how debtor coalitions foiled the development of fiscal states.

This chapter draws on Saylor and Wheeler (2017).

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Notes

  1. 1.

    There is growing interest in the rise of fiscal states in Europe and elsewhere (see Bordo & Cortés Conde, 2001; Cardoso & Lains, 2010; Dincecco, 2011; Yun-Casalilla & O’Brien, 2012).

  2. 2.

    The main alternatives to debt financing, such as monetary expansion and currency debasement, have similar effects.

  3. 3.

    I developed this thesis with Nicholas C. Wheeler (Saylor & Wheeler, 2017).

  4. 4.

    See Saylor and Wheeler (2017) for a case study of how a net-creditor coalition in eighteenth-century England spurred fiscal development.

  5. 5.

    At the same time, Chile was beset by bellicist pressures. In the nineteenth century, Góngora (1986) considers Chile to have been a “land of war,” while Resende-Santos (2007, p. 156) characterizes it as “perennially insecure.” Centeno (2002, pp. 44–45) counts three interstate and four civil wars during the century; I would add Chile’s 1859 insurrections to Centeno’s list (Saylor, 2014a, pp. 82–83). Last, Thies (2005, p. 457) identifies three external rivalries for Chile during the nineteenth century.

  6. 6.

    Soifer (2015, p. 171, Table 5.5) notes that Mexico ’s “land value tax, the contribución predial, was collected only in Mexico City and the federal territories.”

  7. 7.

    Argentina was also part of a strategic rivalry with Chile, and Brazil had a rivalry with Great Britain (Thies, 2005).

  8. 8.

    Estimates of the money supply vary, but everyone agrees that it contracted during 1862–1865. Chiaramonte (1971, p. 58) estimates the money supply was 340 million paper pesos in 1862. Cortés Conde (1989, p. 42) calculates that it contracted to 305 million pesos by 1864. They agree the money supply was 298 million pesos in 1865. Adelman (1995, p. 245) calculates a starker contraction from 378 million paper pesos in 1862 to 230 million by 1865.

  9. 9.

    Argentina’s only outstanding foreign debt before the war was its 1824 loan, which had been in default but was rescheduled in 1857 (Ferns, 1960, pp. 319–320).

  10. 10.

    The state funded the remaining war expenses by issuing promissory notes to military men and borrowing from the Banco de la Provincia de Buenos Aires (Platt, 1983, pp. 33–40, quote from p. 37; Marichal, 1989, pp. 92–93).

  11. 11.

    The peg was 25 paper pesos to one peso fuerte. Adelman (1995, p. 245) and Reber (1979, p. 32) note that the growing scarcity of paper pesos bothered merchants too.

  12. 12.

    Ranchers were prominent among the directors of the Banco de la Provincia de Buenos Aires and the provincial mortgage bank (Sabato, 1990, pp. 273–274).

  13. 13.

    There had been a modest rise in price indices under the convertibility regime.

  14. 14.

    Calculations based on data from Chiaramonte (1971, pp. 38–39, 90), Cortés Conde (1989, pp. 33, 86, 112), and Oszlak (1982, pp. 204–205, 262).

  15. 15.

    La Prensa, September 23, 1875 (vol. 6, no. 1618) and July 27, 1876 (vol. 7, no. 1864).

  16. 16.

    The Times, March 16, 1876, Issue 28,578, p. 7.

  17. 17.

    These buyers in turn sold some debt on the secondary market, to individuals, other banks, joint stock companies, and religious organizations (Summerhill, 2015, p. 105).

  18. 18.

    Debt service constituted 14% of Brazil’s budget in 1860. It rose to 27% in 1870 and to 34% in 1880 (Schulz, 2008, p. 144).

  19. 19.

    Brazil’s net creditors feared inflation and currency depreciation and wanted tight money (Ridings, 1994, pp. 140–143; Topik, 1985, p. 207).

  20. 20.

    In addition, cadastral surveys would have created tension between landowners over boundary definition and facilitated land taxes.

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Authors and Affiliations

  1. Department of Political Science, University of Tulsa, Tulsa, OK, USA

    Ryan Saylor

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  1. Ryan Saylor
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  1. Pontificia Universidad Católica de Chile, Macul, Chile

    Jorge Atria

  2. Freie Universität Berlin, Berlin, Germany

    Constantin Groll

  3. Friedrich Ebert Stiftung, Bogota, Colombia

    Maria Fernanda Valdés

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Saylor, R. (2018). Debtor Coalitions and Weak Tax Institutions in Latin America: Insights from Argentina and Brazil. In: Atria, J., Groll, C., Valdés, M. (eds) Rethinking Taxation in Latin America. Latin American Political Economy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-60119-9_2

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