UNIVERSITY OF CALIFORNIA, SAN DIEGO The Taxation Tango: State Capacity in Argentina’s Provinces A dissertation submitted in partial satisfaction of the requirements for the degree Doctor of Philosophy in Political Science by Melissa Ziegler Rogers Committee in Charge: Mathew McCubbins, Co-Chair Peter Smith, Co-Chair Gary Cox Paul Drake Carlos Waisman 2010 Copyright Melissa Ziegler Rogers, 2010 All Rights Reserved The Dissertation of Melissa Ziegler Rogers is approved, and it is acceptable in quality and form for publication on microfilm and electronically: Co-Chair Co-Chair University of California, San Diego 2010 iii DEDICATION Dissertations do not come easily or quickly. I appreciate the patience of my family, friends, and husband from whom I sought advice and support. I also thank them for helping me by editing drafts, offering constructive criticism, and taking care of business on the home front while I trekked through Argentina. My advisors have given me funding, opportunities for research and publication and invaluable guidance in my academic pursuits. I thank my parents most of all for pushing me to succeed in academia and for encouraging me at my most doubtful moments. They are my favorite people in the world and I only wish that my Mom were still in this world to celebrate with us. iv TABLE OF CONTENTS Signature Page ................................................................................................................... iii Dedication .......................................................................................................................... iv Table of Contents .................................................................................................................v List of Figures .................................................................................................................... vi List of Tables .................................................................................................................... vii Acknowledgments............................................................................................................ viii Vita ..................................................................................................................................... ix Abstract .............................................................................................................................. xi Chapter 1: Introduction ........................................................................................................1 Chapter 2: Politicians’ Incentives and Bureaucratic Quality .............................................21 Chapter 3: Identifying and Measuring State Capacity .......................................................47 Chapter 4: When the Well Dries ........................................................................................78 Chapter 5: Governor’s Calculations.................................................................................113 Chapter 6: Conclusion......................................................................................................166 Appendix ..........................................................................................................................184 References ........................................................................................................................188 v LIST OF FIGURES Figure 1.1 Sub-national Spending in Latin American Countries……………………. 10 Figure 4.1 Own-Source Revenues, Percentage of Total Provincial Spending………. 86 Figure 4.2 Mean Provincial Taxes (% of GPP), Change at 1991……………………. 96 Figure 5.1 Strong Party vs. Capable Bureaucracy Theoretical Expectations………... 141 Figure 5.2 Compliance with the Fiscal Pact of 1993, by Party……………………… 142 Figure 5.3 Compliance with the Fiscal Pact of 1993, by Capabilities………………. 144 Figure 5.4 Automobile Tax Compliance, by Capabilities…………………………… 147 Figure 5.5 Compliance with Real Estate Valuation…………………………………. 151 Figure 5.6 Non-Compliance with Real Estate Tax Reform…………………………. 154 vi LIST OF TABLES Table 2.1: State Capacity Outcomes Depending on Capabilities and Will…………. 31 Table 4.1 State Capacity Outcomes After Convertibility…………………………... 80 Table 4.2 Changes to Provincial Finances After Convertibility……………………. 89 Table 4.3 Private Loan Per Capita Groupings……………………………………… 95 Table 4.4 Total Taxes, Before and After 1991……………………………………… 97 Table 4.5 Changes in Total Taxation, By Province………………………………… 98 Table 4.6 Full Model Results……………………………………………………….. 99 Table 4.7 Property Taxes…………………………………………………………… 102 Table 4.8 Automobile Taxes………………………………………………………... 102 Table 4.9 Stamp Taxes……………………………………………………………… 103 Table 4.10 Difference in Means, Property and Sales Tax Per Capita Revenue…….. 104 Table 4.11 Gross Business Taxes…………………………………………………... 105 Table 4.12 Tax to Loan Ratios……………………………………………………… 109 Table 4.13 Coparticipation “Collateral” for Network Groups……………………… 111 Table 5.1 Fiscal Pact of 1993- Major Components………………………………… 123 Table 5.2 Partisan Composition of Provincial Governors………………………….. 138 Appendix Table 5.1a: Fiscal Pact of 1993 Components……………………………………….. 184 Table 5.2a: Tax Stipulations of the Pact of 1993—Obligations of the Provinces….. 185 Table 5.3c: Automobile Valuation Non-Compliance, by Capabilities and Party….. 186 Table 5.4d: Real Estate Valuation Compliance, by Capabilities…………………... 186 Table 5.5e: Provincial Compliance with the 1993 Fiscal Pact……………………... 187 vii ACKNOWLEDGMENTS I thank Peter Smith, Mathew McCubbins, and Paul Drake for their guidance in the Ph.D. progress and their assistance with my dissertation. The research for this dissertation was supported by the National Science Foundation’s Dissertation Research Grant and the Center for Iberian and Latin American Studies at UCSD. viii VITA 2001 Bachelor of Arts, Brown University 2001-2003 Vera Institute of Justice 2003-2009 Graduate Research Assistant, University of California, San Diego 2005 Master of Arts, University of California, San Diego 2005-2010 Teaching Assistant, University of California, San Diego 2006-2010 Adjunct Instructor, University of California, San Diego 2010 Doctor of Philosophy, University of California, San Diego PUBLICATIONS “Political and Technical Barriers to Policy Reform: A Comparison of US and Argentine Tax Reform.” In Elgar, Edward ed., Comparative Development. (with Nicholas Weller) 2010 “Tax Man Cometh: Income Taxation as a Measure of State Capacity.” In review, Comparative International Development. (with Nicholas Weller), March 2010 “Democracias liberal e illiberal na América Latina.” Opinião Pública 15(2): November 2009 (with Peter Smith) “Illiberal and Liberal Democracy in Latin America.” In William Smith, ed. Latin American Democratic Transformations. Cambridge: Blackwell Publishers. (with Peter Smith), 2008 “Illiberal and Liberal Democracy in Latin America.” Latin American Politics and Society. Volume 50, Spring 2008. (with Peter Smith) “Governmental Performance and Political Regimes: Latin America in Comparative Perspective 1990-2004.” Taiwan Journal of Democracy. Spring 2008. (with Peter Smith) “Governmental Performance and Political Regimes” in After the Third Wave, Taiwan Think Tank, eds. Forthcoming. (with Peter Smith) From Peace to Governance: Police Reform and the International Community, Washington, D.C.: Washington Office on Latin America, 2002. ix FIELDS OF STUDY Major Field: Comparative Politics Secondary Field: American Politics x ABSTRACT OF THE DISSERTATION The Taxation Tango: State Capacity in Argentina’s Provinces By Melissa Ziegler Rogers Doctor of Philosophy in Political Science University of California, San Diego, 2010 Professor Mathew McCubbins, Co-Chair Professor Peter Smith, Co-Chair Most states of the world are ineffective at implementing policy. State capacity to perform these tasks is dependent both on the will of politicians who make laws and the technical capabilities of bureaucracies who carry them out. Existing measures of state capacity do not effectively separate these two sources of capacity failures, leading to uncertainty about the condition of policy implementation in most states. I develop a measure of state capacity based on types of taxes that better captures the theoretical foundations of state capacity. Additionally, in two empirical chapters, I build research designs that enable us to identify politicians’ efforts at encouraging policy implementation and observe the weaknesses of bureaucracies to collect revenue and deliver services. Most studies of state capacity understand the problems of bureaucracies to be rooted in politics but do not consider that the reverse might be true—that weak xi bureaucracies could themselves affect the political system. I theorize about the role of bureaucracies in the operation and design of political institutions. Specifically, political parties are not able to impose collective discipline and provide inducements for their members in the absence of a quality bureaucracy able to come through on their promises. Parties are thus unable to encourage individual politicians to overcome incentives to behave in short-sighted or localized ways. These innovations in the measurement of state capacity and the analysis of feedback from technical capabilities to party systems are examined in the context of Argentina during its reform era in the 1990s. xii Chapter 1 Introduction As the twentieth century draws to a close, the state will remain center stage, but increasingly it will be the state’s difficulties