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Summary

Chapter 5 studies the case of Costa Rica, an example of a diminished form of elite taxation due to weak linkages between the government and business elites. Whereas average levels of violence have remained lower in Costa Rica compared to several of its Central American neighbors, economic elites concentrated in the province and canton of San José experienced sharp increases in violent crime. In 2011, the country adopted a flat tax on corporations and earmarked its revenue for public-safety purposes. However, Costa Rica’s left-of-center administrations struggled to overcome obstacles related to elites’ mistrust in government, which led to a much less targeted form of taxation.

Existing corporate taxes distort many aspects of firm behavior. To the extent that the corporate tax rate is lower than personal tax rates, taxes favor corporate activity, and favor retaining earnings rather than paying earnings out to employees and investors. Multinationals can even avoid these taxes by shifting income into tax havens. Given the ease with which multinationals can evade tax, the existing income tax structure faces major pressures, as reflected in average statutory corporate tax rates halving in recent decades. The Element speculates on alternative tax structures that will avoid these problems.

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5 - Costa Rica’s “Soft” Security Taxes

Summary

The Role of the Corporate Tax

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2 results

5 - Costa Rica’s “Soft” Security Taxes

Summary

The Role of the Corporate Tax