State-Building and Tax Regimes in Central America
Schneider astutely observes how fiscal policies can illuminate underlying domestic power structures. In El Salvador, Guatemala, and Honduras, local capitalists have conspired to keep taxes low and regressive, preventing their governments from meeting basic responsibilities. Nevertheless, as Schneider shows, each country has its own particular story. In El Salvador, a relatively forward-looking and unified business class has abided a number of significant tax increases, whereas in Guatemala, ferociously reactionary and fragmented elites have made sure their tax rates remain among the lowest in the hemisphere. Part of the problem is the openness of these small economies and the mobility of capital, both of which put pressure on the governments to offer tax concessions to footloose investors. Another problem is the apparent unwillingness or inability of privileged families to extend their allegiances beyond their immediate circles to the broader national community. Schneider hopes the middle and popular classes in all three countries will mobilize on behalf of more egalitarian fiscal policies and stronger states capable of implementing shared national compacts. Such revised states might be drawn closer to their more prosperous neighbor, Costa Rica, which benefits from relatively well-established institutions and a firmer commitment to social democracy.