Guatemala's poor getting poorer [View all]

[Judi Lynn]

Guatemala's poor getting poorer

In Latin America, only Guatemala's poor are getting even poorer. A new World Bank study says a key reason is that the government collects too few taxes. Low spending leads to poor infrastructure and slow growth.

Date 12.09.2014

According to a World Bank report entitled "Guatemala Economic DNA", released Friday (11.9.2014) in Ciudad de Guatemala, the poorest 40 percent of the country's 15 million citizens lived on just $1.50 per day (1.16 euro) in 2012 - down from $1.60 in 2003. It's the only country in Latin America where the poor have been getting even poorer.

A basic problem was inadequate public investment and decaying infrastructure, connected to very low levels of tax collection - at 11.9 percent, the share of GDP collected and spent by ranks 204th of 215 countries, according to the CIA World Fact Book. Public investment stands at just three percent of GDP.

The problem isn't that income tax or value-added tax rates are too low. It's that government is not effective at actually collecting taxes owed - in part because a large proportion of the citizenry lives entirely in the "informal economy", the report shows, meaning people don't have formal jobs or businesses and aren't registered with tax authorities. Tax evasion by registered businesses is also a big problem.

For comparison, Germany's governments collect and spend 40.6 percent of GDP. Honduras, Guatemala's neighbor, collects 15.8 percent, Kenya 18.4, Costa Rica 21.0, South Africa 26.9 , Mexico 29.7, and Canada 32.2 percent. In general, economic data show a strong positive correlation between the percentage of GDP routed through government spending and a country's standard of living. The reason is that good public infrastructure and public services are necessary for enabling private business activity.

More:
http://www.dw.de/guatemalas-poor-getting-poorer/a-17917809?maca=en-rss-en-bus-2091-rdf