The Political Economy of Tax Reforms and the Implications for Social Development in Nicaragua

This paper examines the mobilization of domestic resources for social development in Nicaragua, analysing the fiscal system, its main tool. The main argument of the paper is that many tax reforms that have taken place in Nicaragua since the 1970s have been motivated mainly by the objective to increase revenue collection. However, through all the periods studied in this paper, higher revenue levels have not necessarily translated into higher social spending, as the latter has fluctuated throughout the different time periods. This results from power relations that determine the economic and social effects of the different tax reforms, more specifically, tax burdens, winners and losers, perpetuating an unequal system of wealth and income distribution in Nicaragua.

The paper concludes that the revenue collected is not sufficient to support higher levels of social spending. Therefore, changes to the tax legislation and administration could potentially improve the ability of the government to mobilize further domestic resources destined to the public sector, thus improving social development.

Roberto Molina is a Political Economist who graduated from the University of California, Berkeley.