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Alberto Diaz-Cayeros, Federalism, Fiscal Authority and Centralization in Latin America (Cambridge: Cambridge University Press, 2006), pp. xvii+277, £48.00; $80.00, hb.

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Alberto Diaz-Cayeros, Federalism, Fiscal Authority and Centralization in Latin America (Cambridge: Cambridge University Press, 2006), pp. xvii+277, £48.00; $80.00, hb.

Published online by Cambridge University Press:  01 February 2008

GEORGE PHILIP
Affiliation:
London School of Economics and Political Science
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Abstract

Type
Book Review
Copyright
Copyright © Cambridge University Press 2008

There is surprisingly little comparative academic work on federalism in Latin America. There is even less work of this type with a strong historical dimension. It is intriguing that, as the author of this book points out, most Latin American countries are more centralised in fiscal terms today than they were a century ago. This is particularly true of Mexico and Argentina, although less so of Brazil, which remains significantly decentralised. Diaz Cayeros argues that these various transformations occurred as the result of political bargaining between the central government and local politicians. It is optimal for state governments to surrender their tax-raising authority to the central administration if they can be guaranteed, in return, an adequate guarantee of financial transfers from centrally collected taxes. However, there is a commitment problem here, in that central government may not want or be able to offer sufficient guarantees that this will happen. So how can this problem be resolved? Essentially, the answer has to do with the way in which political coalitions are built up and sustained (or otherwise).

While the theme of the work is clear, the detail given to the various topics chosen for discussion varies. The book is rather loosely constructed, to the point that it gives the impression of being almost a set of inter-linked essays featuring some sophisticated quantitative analysis and connected by a broad public choice methodology. The first part of the book is a detailed study of the evolution of taxation policy in Mexico from the end of the Revolution to the 1990s. Diaz Cayeros presents the interesting argument that Mexican state governors retained significant power for quite a number of years after the official party was set up, and even after the Calles-Cárdenas confrontation. This is largely because many state governors had access to independent sources of political power within their own states which they could use either to support central authority or else to undermine it and make government more difficult. Centralisation was really a post-World War II phenomenon, and it was completed only in the late 1970s when the boom in oil exports finally shifted the balance of fiscal advantage in the direction of central government.

The material on Mexico is full and very interesting. The author is able to use his rather narrow area of enquiry to create genuinely new insights into central government-state relations in the post-revolutionary period. The most significant claim is probably that taxing power in Mexico was more decentralised for longer than alternative criteria for discussing the distribution of power between centre and state (such as the removal of state governors by incumbent presidents) would have led one to suppose. However, the main focus of the work is authoritarian Mexico. A reader interested in learning much more about the politics of taxation in democratic Mexico will be disappointed. There is very little on the post-1997 period.

The second part of the work features chapters on Venezuela, Argentina and Brazil. Argentina underwent a significant degree of fiscal centralisation in the twentieth century, while Brazil remained fairly decentralised, and Venezuela has always been rather centralised and did not change much. The author looks at specific historical experiences, viewing that of Peronism as largely responsible for the pattern of centralisation in Argentina. Conversely, the establishment of the Brazilian federation after 1889 established a decentralised political system with much power remaining in the hands of state governors. Venezuela underwent little change since the flow of oil revenue to central government enhanced its autonomy.

The rather narrow research question in combination with the breadth of the field being investigated in the second part of the work (three countries over an entire century) means that some of the discussion is inevitably rather perfunctory. The most interesting questions are often too broad to be captured by such a framework. Admittedly, the author is careful to point out that the location of political authority to tax is a different question from the level of taxation and the size of the state, but the two issues are to some considerable extent intertwined in practice. The nature of this intertwining surely requires some discussion. However, Diaz Cayeros does not have much to say about tax versus spend or tax versus borrowing conflicts. Yet these conflicts are surely crucial to our understanding of why taxes are collected in any particular way. For example, the Mexican state collects rather little non-oil taxation (even though tax collection is centralised), and since 1982 has preferred to respond to debt problems by reducing the size of the public sector rather than enhancing the level of taxation. Was the need to deal with a bloated state sector in the context of a debt crisis really not a significant factor in Mexico's continuing fiscal centralisation? Similarly, Peronist centralisation was surely motivated in part by Perón's wish to exert tighter control over his political enemies among the landowning elite. It does not seem entirely satisfactory to argue that the location of tax collecting authority is independent of broader issues about the size of the state and the nature of the political culture of the country concerned.

Yet, despite its rather narrow conceptual framework, this work is a major contribution to our understanding of how federalism has developed in the largest Latin American countries over the past century.