Argentina: A Tanzi chronicle
| Author | Eduardo Borensztein |
| Position | Advisor, IMF Research Department |
| Pages | 53 |
Page 53
How One of the Richest Countries in the World Lost Its Wealth Jorge Pinto Books, New York, 2007, 164 pp., $19.95 (paper).
Vito Tanzi, the former longtime Director of the IMF's Fiscal affairs Department, knows argentina well. Over the past four decades, he traveled to argentina about thirty times and lived there for a combined period of more than one year. This book is a history of argentina from the perspective of his periodic visits and contacts. although Tanzi focuses on the economic and fiscal problems of argentina, the span of his book is broad.
Argentina: An Economic Chronicle is a thoroughly enjoyable memoir, with stories of encounters with presidents and ministers, artists and intellectuals, politicians and journalists, and taxi drivers and Italian immigrants. It collects the impressions-over four decades-of a european visitor to argentina, as he tries to decipher the national culture and history, reflects on the fate of the many Italian immigrants to that land, describes places of stunning natural beauty (it was not all work and no fun after all), and relates the (inevitable) experiences of the frequent international traveler, including strikes, scary flights, and food poisoning.
Tanzi must also be fond of argentina because it served to inspire the "Tanzi effect." (In argentina, this is often called the "Olivera effect," in honor of Professor Julio Olivera of the Universidad de Buenos aires, who also wrote about fiscal lags at about the same time.) The Tanzi effect explains that the real value of tax revenues falls in high inflation, as a consequence of the usual time lags in the collection of taxes-for example, between the moment when income is earned and when income tax is paid.
With high inflation, this lag implies that by the time the government receives the money, its purchasing power has already depreciated, and the money will not go as far in purchasing goods or paying salaries (that often become indexed to inflation faster than taxes). at moderate rates of inflation, the Tanzi effect is negligible; at triple-digit rates and higher, it can be devastating. argentina has, unfortunately, been the perfect subject for Tanzi's observations and estimates of the fiscal lags' effect.
Although the book is not technical, and does not contain charts or equations, Tanzi makes a serious attempt to explain the inexplicable secular economic decline of...
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