Honesty as income in Argentina

In Argentina, it is called the “national sport.” It is the game of tax dodging in which individuals and companies play cat and mouse with tax collectors. In July, the government decided to change the rules. It announced an amnesty for citizens who declare unreported wealth up to $100,000. Since that offer of forgiveness, banks have opened more than 100,000 new accounts tied to the amnesty. Total deposits now exceed $1.4 billion in previously undisclosed assets.

The tax pardon is only part of an attempt by a government that swept into power less than a year ago to uproot corruption at many levels of society. Yet the amnesty could have one immediate effect. If honesty becomes a norm and more people come clean, it brings cash quickly into the economy. For Argentina, where an economic crisis has left more than half of people in poverty, that helps relieve high debt and boosts investments.

So far, however, only a fraction of an estimated $204 billion hidden away in untaxed wealth has been declared. Argentina has offered tax amnesties on average every four years over the past two decades. They didn’t often work because they were followed by disincentives such as higher taxes or deep bouts of corruption, particularly when government changed hands between political parties.

The new amnesty is seen as different. It excludes individuals who have held public office at any time during the past 10 years, along with members of their families. State contractors are also ineligible. The law bars assets from being registered in the name of third parties. It coincides with other reforms meant to bring more transparency to public contracts.

Creating momentum in paying taxes has an intangible benefit of strengthening trust in the rule of law. Scholars find that official honesty in government and a greater fairness in tax burdens encourage citizens to pay their share. 

Argentina has made a start in promoting honesty by inviting tax cheaters to admit their wrongdoing, perhaps forcing a change of heart about their civic responsibility. The new rules may be giving Argentines confidence that it pays to play a sport different than one based on cheating. Honesty can breed more honesty.