Stephan Klasen and Felicitas Nowak-Lehmann (eds.), Poverty, Inequality and Policy in Latin America (Cambridge MA and London: Massachusetts Institute of Technology Press, 2009), pp. vi+324, £22.95, hb.
important in future work to develop a more rigorous analytical framework behind the political economy of the internal and external constraints on fiscal policy space in the age of globalisation. One such constraint is the intense competition among governments in Latin America and elsewhere to attract foreign direct investment through incentives that often include zero tax rates in export processing zones. Agosin et al. and Sánchez-Ancochea highlight the perilous budgetary consequences of this constraint and the need for collective action at the regional and global level to loosen it. Another important constraint stems from the bilateral trade and investment agreements that many countries in the region have signed with the United States, which allow foreign investors to bring claims against the host country government when changes in regulation, for example in the tax structure, reduce their profitability, and where governments agree to abide by the results of compulsory investor-state arbitration outside of the host country’s jurisdiction. Why did some Latin American governments sign these agreements (for example, in Central America and Peru), while others did not (for example, Brazil), and still others decided to push the boundaries and revoke the agreement (for example, Ecuador) ? To gain further insights into the political economy of budget reforms, a comparative analysis with countries that face similar constraints and that have had successful reforms may be more fruitful than a comparison with the United States. Nonetheless, for understanding the political economy of forging a social consensus behind tax reform, Ippolito shows that the US experience provides interesting lessons. He describes how the Tax Relief Act of 1986 could be passed with bipartisan support because both Republicans and Democrats felt that part of their agenda had been realised : for the former, it meant a significant reduction in marginal tax rates, and for the latter, it meant the abolition of many tax exemptions and the elimination of income tax liability for six million low-income payers. This volume, written and published before the world economic crisis hit in the second half of 2008, focuses on the important structural problems of spending, taxing and borrowing in the Americas. The global crisis has added even greater urgency to the task of understanding the political economy of the public budget and the ways in which Latin American governments can expand their fiscal policy space.