Latin America's development agenda is underfunded. The region needs an additional USD 99 billion per year to achieve the SDGS, and fiscal space is tight. To bridge this gap, LAC countries must improve how they collect taxes, spend public funds, and manage debt. Some countries across the region spend more on their debt payments than they do on education; better debt management can free up funds for development. Achieving LAC’s development agenda also requires more private investment, through deeper, more inclusive and efficient financial markets. Closer regional integration can also help mobilise resources.
Latin American development strategies
Latin American economies need new growth models to reach high-income status, increase productivity and strengthen their emerging middle classes. To help identify innovative policy options, the OECD stimulates an open dialogue between the region’s policy makers, their international partners, and investors. It also supports reform efforts with country-specific and thematic work.
Key messages
Faced with complex trade-offs between their economic, social and environmental goals, policy makers in Latin America need innovative, multi-sectoral strategies to ensure that their country’s development path is sustainable and that the lives of citizens improve. The OECD helps them design policies and strategies that promote development in a broad sense rather than solely growth, taking into account the interactions across policies in various domains.
Government revenue is the primary source of development finance for any country, and an essential component of the social contract. In many Latin American countries, tax systems need to be made more effective and progressive, in order to increase the fiscal space of states, and tackle the inequalities that erode social cohesion. The OECD works with financial and tax administrations in the region to create databases of trusted, comparable data, improve collection and inform tax reforms.
Context
Measuring the informal economy in Latin America
Low productivity growth is a major structural challenge in LAC. One important reason for this is the high level of informal work. Across the region, more than half of LAC workers (55.7%) were employed in the informal economy in 2022. Across LAC in recent years, 64.9% of people lived in households where at least one of the principal earners held an informal job, 42.5% in households depending entirely on informal employment and 22.4% in households with earners holding formal and informal jobs. People living in households where all earners were formal workers represented just 25.1% of the population.
Three decades of growth in LAC tax revenues
Despite the declines in tax-to-GDP ratios caused by the global financial crisis in 2009 and by COVID-19 in 2020 (of 0.8 p.p. and 0.7 p.p., respectively), the average tax-to-GDP ratio for the LAC region has increased significantly over the past three decades, rising from 14.6% in 1990 to 21.5% in 2022. By contrast, the average tax-to-GDP ratio of OECD countries has been relatively stable since 1990, although at a higher level than the LAC average, reaching 34.0% in 2022, 3.2 p.p. above its level in 1990. The difference between the LAC and OECD average tax-to-GDP ratio has thus reduced considerably over time, reaching 12.5% of GDP in 2022.
Latest insights
Latin American Economic Outlook
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