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Documents inThe unauthorized commercial use of Bank documents is prohibited and may be punishable under the Bank's policies and/or applicable laws.Copyright © Inter-American Development Bank. This working paper may be reproduced for any non-commercial purpose. It may also be reproduced in any academic journal indexed by the American Economic Association's EconLit, with previous consent by the Inter-American Development Bank (IDB), provided that the IDB is credited and that the author(s) receive no income from the publication. This paper examines the impact of ideology on tax revenues in Latin America, using a panel of 17 countries from 1990 to 2010. As a first approach, a fixedeffects model is used to identify the impact of ideology on taxation; left-leaning governments are associated with increases in total tax revenues and income tax revenues of 2.1 and 1.3 percent of GDP, respectively. There is no effect on revenues from VAT or social security taxes. To deal with endogeneity problems, an event study and a difference in difference methodology are used to track the behavior of revenues around the time of the shifts to the left. Tax revenues and income tax revenues increase by 1.5 and 0.8 percent of GDP when comparing revenues immediately before and after the shift in ideology. The pattern of tax revenues around ideological shifts suggests that the effects are causal.
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JEL classifications: H20, P16