Connection between income and expenditure: keynote theme of the new CAF Report on Economy and Development

(Montevideo, July 3, 2012). – CAF - development bank of Latin America - presented the eighth edition of Report on Economy and Development (RED). The new publication is titled Public Finances for Development: strengthening the link between revenue and expenditure.

Enrique García, president & CEO of the multilateral financial institution, said "we hope the study and analysis of the tax system contained in this new edition of RED will be the basis for a discussion on changes in public finances which, addressing the special circumstances of each country, helps build consensus on possible courses of action for increased and more inclusive growth."

García added that the eighth edition of RED underscores the need to strengthen and improve the transparency of the connection between decisions on taxes and spending.

A CAF survey found that nearly three quarters of the citizens of the cities surveyed consider that the fact that they pay taxes according to the law gives them the right to demand high quality management from the authorities, which highlights the need to strengthen the link between revenue and spending.

"Promoting deeper knowledge of the region, delving into issues that affect our countries and providing possible solutions, is CAF’s contribution to development processes in Latin America, as an institution that accompanies the region in its development strategies not only with finance but also with knowledge and technical support," the CAF CEO said.

Various aspects of the functioning of the tax system that could impair the link between revenue and spending are identified throughout the Report. These include unbalanced tax structures with low share of income taxes, high levels of evasion that make the tax system very unequal, low level of efficiency and redistribution capacity of social spending programs.

Latin American countries face the need to provide economic infrastructure and social programs to support the process of economic growth with equity. This process requires more efficient use of resources along with an increase in the revenue received by the State.

Although Latin America has made progress in terms of distribution, an effective and sustainable redistribution system needs two key tools: creation of real opportunities through quality investments in building human capital; and an inclusive welfare state that puts all citizens on the same level of the citizen-State contract by combating labor informality.

The chapters of RED 2012 cover the following topics:

• State and development: redistribution, efficiency and representation
• Public finances and equity in Latin America
• Quality public spending: measurement and best practices
• Tax structure and the challenges of collection
• Taxes and good government: empowerment and reciprocity
• Natural resources and the link between citizens and the State
• Budget process and the connection between revenue and expenditure

Available at www.caf.com