Report Nº: 102824/08/2023


The national state takes resources from the most productive areas and allocates them to CABA, the richest jurisdiction in the country, and to the poorest provinces, using the terrible instrument of co-participation. The solution is a new agreement between the Nation and the provinces to redefine tax and functions jurisdictions.       

A new agreement with the IMF was announced. The government clings to avoid devaluation before the elections, appealing to an inconsistent package of measures that deepen the crisis. The IMF, for its part, limits itself to promising that it will reimburse what Argentina paid in June and will pay in August. Meanwhile, the Central Bank continues to increase its negative reserves, the private sector accumulates debt in dollars for imports that it does not pay, the monetary emission –contained with the Leliqs– reaches 3 times the monetary base, and the public debt in pesos is indexed and continually increasing.

The next government will take office in a state of very deep crisis whose main origin is the chronic financial and management deficits suffered by the State. As this is an organizational problem, traditional fiscal adjustment is ineffective. A comprehensive reorganization of the public sector is needed, with the rethinking of roles in the federal system.    

To start with, it is important to ask how many national taxes are collected in each province and how much the Nation allocates either directly or through transfers to each of them. As of 2022 the balance between taxes contributed and resources received is as follows:

  • 5 provinces contribute more taxes than what they receive from the national State (Buenos Aires, Córdoba, Santa Fe, Neuquén, and Chubut).
  • 4 provinces contribute taxes in a similar amount to what they receive from the national State (Santa Cruz, La Pampa, Mendoza, and Entre Ríos).
  • The remaining 14 provinces receive more resources from the national government than they contribute in taxes (the largest is CABA and the northern provinces).  

These data show that the national government does not play a neutral role in the regional distribution of income. On the one hand, the Pampa region, with a decisive weight of the interior of the province of Buenos Aires, Córdoba, and Santa Fe, and part of Patagonia contribute more than they receive. On the other hand, in CABA and the northern provinces, the national government collects only a part of what it spends directly in those territories or sends through co-participation or discretionary transfers. 

The first paradox is that the most benefited by the national State is the richest jurisdiction in the country: CABA. This is not explained by preferential treatment in the co-participation of taxes, but because the Nation takes over functions that in the rest of the country are assumed by provincial and municipal governments, and because of the weight of the national administrative structure located in CABA. A second paradox is that the Nation redistributes income to the poorest areas through co-participation, which deepens their backwardness. Co-participation does not stimulate development but rather encourages the use of resources to fatten spurious public employment and other clientelistic actions.

In order to get out of this perverse scheme, it is necessary, on the revenue side, to agree on a distribution of taxation faculties so that each jurisdiction is financed with the taxes it collects from its citizens. The current co-participation law must be repealed and, in its place, a principle of fiscal correspondence (whoever administers an expense, also takes charge of the tax to finance it) must be adopted. Solidarity towards the poorest provinces should be channeled through a Convergence Fund. This mechanism, unlike co-participation, will impose a commitment to use the solidarity resources in a development plan. On the expenditure side, an agreement should be reached that the Nation only executes interprovincial functions without interfering in provincial responsibilities. 

For the next government, the main challenge is not to establish a new monetary regime or the Central Bank´s independence. These are complementary elements to the more complex and central issue of eliminating the chronic financial and management deficits of the State. To this end, it is essential to give rationality to the organization of the public sector based on a coherent distribution of tax faculties and function responsibilities. 


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