A Public Expenditure Review for Paraguay : The Quest for Optimal Tax and Expenditure Policies for Shared Prosperity
Paraguay has achieved significant progress in terms of fiscal policy over the past decade. Despite this progress on fiscal reform, three major challenges remain: 1) a volatile macroeconomic environment; 2) still insufficient fiscal resources; and 3...
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| Format: | Economic & Sector Work |
| Language: | English en_US |
| Published: |
Washington, DC
2015
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| Online Access: | http://documents.worldbank.org/curated/en/2013/11/18706123/public-expenditure-review-paraguay-quest-optimal-tax-expenditure-policies-shared-prosperity http://hdl.handle.net/10986/21280 |
| Summary: | Paraguay has achieved significant
progress in terms of fiscal policy over the past decade.
Despite this progress on fiscal reform, three major
challenges remain: 1) a volatile macroeconomic environment;
2) still insufficient fiscal resources; and 3) high levels
of poverty and inequality. In light of these three
challenges, the objective of this report is to examine the
extent to which fiscal policy in Paraguay has contributed to
the social progress of the past decade, and can serve the
purpose of further reducing poverty and enhancing shared
prosperity in the years to come. Overall, fiscal policy can
contribute to containing poverty and inequality by buffering
the negative impact of financial and economic crises on
vulnerable parts of the population. Moreover, tax and
expenditure policies that redistribute from high- to
low-income households in a well-targeted manner can also
contribute to these goals. The current structure of the tax
system appears suboptimal in light of the identified
challenges. Even though the reliance on indirect taxes
insulates public revenues from economic volatility to a
certain extent, it imposes high costs associated with
sufficiency and equity of the system. Adequate taxation of
the agricultural sector is needed to level the playing field
for business development in all sectors and to address the
insufficiency of taxes. While fiscal policy contributes less
to poverty reduction and shared prosperity in Paraguay than
in the other countries analyzed for this study, direct
transfers are well targeted. Overall, Paraguay's fiscal
system is less progressive than in other Latin American
countries analyzed. Paraguay's reliance on indirect
taxes makes its overall tax system regressive. The
sufficiency and efficiency of social expenditures have to be
considered within the context of fiscal prudence, which is a
continuous task. This is especially important in light of
the recent expansionary fiscal stance. Only if the
Government is able to sustain fiscal prudence in the future,
will it be able to maintain macroeconomic stability and performance. |
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