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Financing Security Through Elite Taxation: The Case of Colombia's “Democratic Security Taxes”

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Abstract

Governments across the developing world in general, and Latin America in particular, tend to have difficulty in raising taxes among elites. Beginning in 2002, however, the Colombian government adopted a series of wealth taxes among the wealthiest taxpayers. Revenue from the tax was earmarked for security expenditures and represented about 1 % of GDP. Drawing on elite interviews, surveys, government documents, and media sources, this article studies the factors behind the adoption of the tax. It finds that three main factors make the elite tax possible, namely the combination of fiscal and security crises, cohesion among business and government elites, and improving perceptions of the government's provision of public safety. The findings should inform efforts in the developing world, where low levels of fiscal extraction, deteriorating security conditions, and mounting public safety expenditures are common.

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Notes

  1. Brazil's tax revenue/GDP in the mid to upper 20s is an exception in the region.

  2. The tax continued during President Santos's administration.

  3. A detailed account of failed attempts at taxing elites is not included because of space considerations, but for a discussion of a dozen attempts since 1974, see Urrutia 1989; Harberger 2002; Olivera, Pachón, and Perry 2010.

  4. All dollar figures are nominal and were converted using the average yearly representative exchange rate figures from Colombia's Central Bank (Banco de la República).

  5. I.e., gross assets minus debt. The calculation of wealth included real estate, vehicles, cattle, ranches, banks accounts, factories, plants, and equipment.

  6. The calculation of wealth excluded the first COP$200 million (US$117,000) of main residence (home or apartment), as well as the net value of stock in domestic companies.

  7. A famous example was the FARC's Law 002 (Rettberg 2002).

  8. The Supreme Court ruled the bonds to be retroactive and therefore unconstitutional.

  9. For a discussion of the prevalence of tax evasion in Latin America, see Bergman 2009.

  10. However, the memory of the crisis in subsequent years likely served as a benchmark for evaluations of public safety.

  11. On business' influence in Congress see Revista Dinero 2011a.

  12. Two of Uribe's cabinet members, who asked not to be identified, provided this account separately in personal interviews.

  13. The approval was controversial because the president convened an extraordinary session of Congress while many legislators were away for winter holiday recess.

  14. Decree 4825 of Dec. 29, 2010. The Constitutional Court upheld the measure on April 4, 2011.

  15. The only exception is social programs.

  16. Federation of Cattle-Ranchers (FEDEGAN); Colombian Agricultural Association (SAC); Colombian Insurers Federation (FASECOLDA); and the Colombian Association of Electricity Generators (ACOLGEN).

  17. This contrast is also appreciated in El Salvador where business was unwilling to cooperate with President José Napoleon Duarte's peace efforts (1984–1989) but threw its support behind President Alfredo Cristiani (1989–1994) (Rettberg 2007).

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Acknowledgments

I am grateful to John Bailey, Fredy Barrero, Marcelo Bergman, Jorge Domínguez, Tasha Fairfield, Odd-Helge Fjeldstad, Frances Hagopian, Oliver Kaplan, Sarah Kreps, Steven Levitsky, Claudia López, James Mahon, Jr., Mick Moore, Gabriel Ondetti, Wilson Prichard, Angelika Rettberg, Omar Sanchez, Aaron Schneider, Ben Ross Schneider, Markus Schultze-Kraft, and anonymous reviewers for comments on earlier versions. I would like to acknowledge the International Center for Taxation and Development (ICTD) for financial support to conduct this research, and the many Colombians that generously shared their views. Earlier versions were presented at Harvard’s Tuesday Seminar of Latin American Politics and the 2012 Annual Meeting of the Latin American Studies Association, and as ICTD Working Paper #3. All errors remain my own.

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    Gustavo A. Flores-Macías

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Flores-Macías, G.A. Financing Security Through Elite Taxation: The Case of Colombia's “Democratic Security Taxes”. St Comp Int Dev 49, 477–500 (2014). https://doi.org/10.1007/s12116-013-9146-7

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