Why isn’t Brazil a first-world country?

I love Brazil, and there are few places where I feel more at home. That being said, the place can be a mess. Here is one reason why:

Unlike the United States, Brazil has chosen to collect most of its taxes through corporations. Thus today, taxes paid by corporations in Brazil are almost twice as high as in the United States. However, that’s not the right comparison. We should be making a comparison with the United States in 1913. That’s when the United States had the same GDP per capita as Brazil today. In 1913 the U.S. government spent only 8 percent of GDP. Thus, as a percentage of GDP, the corporate tax burden in Brazil today is seven times that of U.S. Corporations when the United States was at Brazil’s current GDP per capita.

Here are formal details on Brazilian corporate taxation. But the document does not stress the reality that half the firms shirk their burden and the more efficient firms must pay far more than they ought to.

It gets worse:

Brazil’s government spends about 11 percent of GDP on the government-run pension system compared with 5 percent in the United States today and close to zero in 1913. The government contribution to the pensions of Brazil’s government employees is 4.7 percent of GDP compared with 1.8 in the United States today….Brazil clearly has government employment it can’t afford.

Here is an article on Lula’s partial success in reforming Brazilian pensions, here is more detail.

The quotations are taken from William Lewis’s interesting The Power of Productivity.

To be continued…


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