In 2017, Argentina had the highest corporate income tax rate in Latin America. Reducing it was politically popular and economically desirable. Getting it through a Congress where the governing coalition held just 19% of Senate seats, while the fiscal deficit ran at close to 8% of GDP, was a harder problem. A package of reforms was planned, revenue-neutral and phased over five years: corporate tax on reinvested profits would fall from 35% to 25%; a minimum-wage deduction would reduce the payroll tax burden on firms employing informal workers; energy, alcohol, and sugar taxes would be reorganised on rational, emissions-based principles; and provincial governments would agree to phase out the cascading "ingresos brutos" sales tax in exchange for limits on public spending.

In this week’s VoxDev Talk, Sebastian Galiani, who served as Deputy Minister of Economy in Argentina and led the design of the reform, tells Tim Phillips how the Macri government attempted to reform its tax structure, and what it teaches us about policy. Credibility, he says, was the biggest constraint: in a country as economically volatile as Argentina, what matters is not only what the law says, but whether investors believe it will survive a change of government.

The research behind this episode:

Afonso, Santiago, and Sebastian Galiani. 2025. "Motives and Constraints in the Implementation of Argentina's 2017 Tax Reform." NBER Working Paper 34442.

To cite this episode:

Phillips, Tim, and Sebastian Galiani. 2026. "Argentina's 2017 tax reform." VoxTalks Economics (podcast).

Assign this as extra listening. The citation above is formatted and ready for a reading list or VLE.

About the guest

Sebastian Galiani is the Mancur Olson Professor of Economics at the University of Maryland. His research spanning political economy, public finance, and Latin American development has examined how institutions, property rights, and fiscal policy shape economic outcomes. He served as Deputy Minister of Economy in Argentina in 2017, where he led the design of the tax reform he examines in this episode.

Research cited in this episode

Ingresos brutos is a cascading sales tax levied by Argentina's provincial governments, applied each time a good changes hands along the supply chain. Unlike a value-added tax, it allows no deduction for taxes already paid at earlier stages; the burden compounds with the length of the production chain, making it particularly punishing for manufactured goods that pass through many hands. Galiani's team negotiated a deal under which the provinces agreed to phase this system out over five years and move toward a simpler, less distortive sales tax structure.

Second-best reform is the practice of improving a policy system as far as constraints allow rather than designing for the theoretically optimal outcome that cannot be achieved in practice. Galiani frames the 2017 reform explicitly in these terms: the design team mapped the distance between Argentina's actual tax system and optimal taxation, then asked how far they could move in that direction given the fiscal, political, and negotiating constraints they faced. The result departed from the ideal in every dimension; it was nonetheless a genuine improvement on what existed before.

Escape clauses are provisions written into legislation that suspend or modify specific commitments if defined trigger conditions are met. The 2017 reform included several: the inflation adjustment for the calculation of corporate assets, for example, would apply only if inflation continued to fall. Galiani describes escape clauses as essential when designing policy in high-volatility environments where external shocks are not exceptional events but a predictable feature of the landscape.

Related reading on VoxDev

How should economic researchers give policy advice? Stefan Dercon argues that giving second-best advice, taking into account what is politically achievable rather than what is theoretically optimal, often produces better outcomes than the standard model of advocating for the ideal and waiting.

How progressive taxation affects tax compliance in developing countries. Reforms that boost progressivity and are effectively communicated can yield higher compliance alongside greater fairness; evidence that the design and communication of a reform matter as much as its content.

Improving payroll-tax compliance through decentralised monitoring: Evidence from Mexico. Evidence that even formal firms evade payroll taxes, and that giving workers the right incentives to monitor their employers' wage reporting can substantially improve compliance; relevant context for Argentina's effort to reduce the payroll tax burden on unskilled workers.

S7 Ep20: Argentina’s 2017 tax reform

VoxDev Development Economics

S7 Ep20: Argentina’s 2017 tax reform