EL BLOG DE LA FIIAPP. Cooperación Española

Cristina García-Herrera is a specialist in taxation and Director of Studies of the Institute for Tax Studies. In this interview she tells us about her experience as an expert on the programme regarding tax cooperation with Latin America EUROsociAL. 

What has been the greatest achievement of your experience as an expert on the FIIAPP–EUROsociAL+ programme?

My greatest achievement in this project is having helped the Institute for Fiscal Studies to continue to be a key partner in the EUROsocial programme, assisting the IEF in its longstanding work in building stronger public finances in Latin American countries with the support and help of specialists and public employees in Spain.    

What are you most proud of?

I am very proud of the role that the Spanish Ministry of Finance, and the Institute in particular, has played in the EUROsocial project over these years, due to the high degree of involvement of public-sector employees, the enthusiasm that exists about contributing to the improvement, the strengthening of public finances in Latin American countries and about a job well done by the entire team.  

How has your assignment contributed to improving the lives of people and the planet?

I believe that through fiscal policy, the EUROsocial programme contributes from both a tax and budgetary perspective as a key element for the development of countries and the improvement of people’s living conditions. Changes in the structure of public income and expenditure have an impact on the distribution of households’ disposable income, on the securing of the fundamental right to equality, on the improvement of public services and ultimately on the achievement of a solid welfare state that provides a better life for all and, in particular, for the least fortunate.   

What is the main value of the public aspect of this for you?

For me, the main value of the public aspect is the protection of general interests. In times of economic crisis, as is the case with the pandemic that we are still experiencing, the public response from countries has been solid. It has demonstrated the relevance of continuing to be committed to State intervention in the economy to correct market failures.  

What have you learned from this experience?

I have learned a lot, both personally and professionally. I have been able to share and exchange ideas with officials and policy makers from a large number of countries. But, above all, I have learned the importance of peer collaboration. Assistance to Latin America is always a win-win, we receive more than we give, and that improves us, both professionally and personally.   

Why is the fight against tax evasion such a powerful tool in combating inequality?

We are at a critical moment not only in the Latin American region but also at a global level in which there are latent fiscal needs. And tax systems produce results, but their full potential is never being realised, in any country. Therefore, it is necessary to see what type of actions we can carry out to maximise potential collection. Because evasion produces losses for the state and produces tax inequity, some pay more than others, it is not only a cash issue but an equity issue. It is a virtuous circle that we need to understand so the public administration can take action. Raising tax collection requires a relentless fight against fraud because it allows measures to be identified to prevent and reduce evasion levels and to improve the efficiency of public spending in providing public services, such as education and health. 

What work have you carried out within the framework of EUROsociAL+ for the Paraguayan Subsecretariat of State for Taxation (SET) and what are its main conclusions? 

Through a methodology developed by the Inter-American Tax Administrations Centre ( CIAT ), we measure non – compliance with corporate income tax to measure the trajectory and behaviour of the tax evasion rate in the country. Through this analysis, we were able to understand what percentage of potential tax is not being collected – which in the case of Paraguay is within the range of the countries in the region – and to see the trend relating to this phenomenon. In addition, through the analysis of microdata, specific cases could be identified with which the SET was able to take specific actions to increase collection from those companies. 

Are there any differences in non-compliance between men and women regarding tax payments? 

No, no differences. However, this work, in keeping with the gender mainstreaming of the EUROsociAL+ programme, adopted a unique approach strategy to include the gender perspective as it relates to tax evasion. The results revealed very useful data for the design of specific public policies to promote gender equality through female entrepreneurship. We saw that the proportion of women entrepreneurs is much smaller than that of male entrepreneurs, in a ratio of 35% women compared to 65% men, and that proportion is higher in some sectors such as agriculture, with a 1 to 9 ratio. On the other hand, there are sectors related to trades more traditionally linked to women where there is a greater representation of businesswomen, such as commerce, textiles and hospitality, where they represent more than 50%.  

Furthermore, when analysing the average income level, it was determined that women are concentrated in the lower income levels. In conclusion, there are fewer women entrepreneurs, they have access barriers to certain sectors, and they have lower incomes. Of every 10 entrepreneurs in Paraguay, 3 are women compared to 7 men.  

Larissa Estevan is a community mediation agent “driven by my love and commitment to the city where I grew up”, Samambaia, a region of Brasilia. “I became a community mediation agent after seeing a group of agents who enabled horizontal dialogue between recyclable material collectors, a very precarious profession in Brazil, university students and state representatives. At that meeting I fell in love with the Community Justice Programme”, explains Estevan.  

Every day, Larissa Estevan works to “provide spaces for dialogue, law and justice in my territory.” One such case was that of Doña Ana, who went to her in the middle of a pandemic because her son had been arrested and she did not know what to do. “She was desperate when she came to us. It had been a month since he had been arrested and she had no information about him, and did not know where to go or how to seek help. We listened to Doña Ana and took the case to an assembly of the Community Justice Programme so that together we could think about possible guidelines, referrals and contacts so that she could exercise her right to have information about her son. Finally we put her in contact with the Ombudsman of the Federal District. A few days later, she called to thank us because she had found out where her son was being held and the Ombudsman’s Office had already provided her with a public defender”. 

“Certainly, as long as there is inequality of powers, social justice will be necessary. The Community Justice Programme works to ensure that our community enjoys at least some of the social justice to which it is entitled, ” said Estevan. 

European Union programmes such as EUROsociAL+ are working for greater social justice in Latin America so that citizens can have legal services and, ultimately, a better life. Specifically, the Democratic Governance area of the EUROsociAL+ programme, managed by FIIAPP through its Inclusive Justice line, is providing technical assistance to the Community Justice Programme of the Court of Justice of the Federal District and Territories of Brazil with technical support from the Council General of the Spanish Legal Profession. 

Laura Cárdenas, communication consultant in the Governance area of the EUROsociAL+ programme 

On 22 October, the Organization of American States (OAS) approved the Model Inter-American Law 2.0 on Access to Public Information at its Annual Assembly. This policy framework, promoted by the OAS Department of International Law (DDI in its Spanish initials), has enjoyed broad participation in its drafting process and is of enormous relevance to Latin America and the Caribbean, since it incorporates cutting-edge standards and best practices for promoting transparency and the right of access to information.

The Law establishes the broadest possible application of the right of access to information in possession, custody or control of any public authority, political party, union and non-profit organisation, which has to respond to requests for information on funds or public benefits received.

As the DDI emphasises, the ultimate objective of the regulations is that “access to public information is consolidated as a tool that allows increasing levels of transparency and to fight effectively against corruption, promoting open competition, investment and economic growth, to generate the confidence of the population in its democratic institutions and empower citizens, including those sectors that are in a situation of vulnerability”.

“This Model Law is intended to provide citizens with greater access to information which is in the hands of the authorities. Why? So that they have a better understanding of how the administration is managed and how the public resources that derive from its taxes are used. We also want it to influence management models that impact ordinary citizens because the right of access to information ranges from right up high to local governments”, underlines Dante Negro, Director of the DDI at the OAS.

The European Union-financed EUROsociAL+ corporation programme, through its Democratic Governance area, which is coordinated by FIIAPP, has made a decisive contribution to the development of this regulatory proposal, through significant technical support channelled through the Network of Transparency and Access to Public Information (RTA) in spaces for debate and the exchange of experiences between guarantor bodies and promoters of the right to information, and through the systematisation of good practices provided by different experts.

The regulation focuses on key factors such as the nature and functions of the guarantor bodies which guarantee this right, the regime of exceptions, the entities bound by the regulation, active transparency and the definitions and scope of the right of access to information. Likewise, it includes as an annex the Inter-American Model Law on Document Management and its implementation guide, prepared by specialists from the Sub-Directorate of State Archives of the Ministry of Culture and Sport of Spain on the basis of the RTA Document Management Model moved forward by EUROsociAL+.

Throughout the work processes EUROsociAL+ also ensured the incorporation of the gender perspective, the norm being one of the first legal instruments of the Inter-American System to incorporate said vision from its conception. ​

As Gabriel del Piazzo, President of the Executive Council of the Unit for Access to Public Information of Uruguay (UAIP) (Presidency of the RTA), points out, “the Model Law 2.0 has the added value of gathering the experience of the guarantor bodies of Latin America, whose responsibility it has been to implement the access to information laws over the last 10 years”.

The Model Law thus becomes a reference to be followed by States in order to improve regulations, guidelines and internal procedures for transparency and access to information. From the moment that the 35 States of the Americas endorsed it, they acknowledged that it is necessary to reach that standard. For citizens and organised civil society, it implies being aware of the standards that their State could potentially reach and thus being able to demand processes for the elaboration of norms or policies aimed at reaching that standard.

This EUROsociAL+ action is aligned with the 2030 Agenda, especially with Sustainable Development Goals (SDGs) 6.10 (to guarantee access to information), 16.5 (to considerably reduce corruption and bribery), 16.6 (to create effective and transparent institutions at all levels of accountability), and SDG 17 (to promote alliances to achieve these objectives).

Borja Díaz Rivillas, Senior Expert in Democratic Governance for the EUROsociAL+ Programme at FIIAPP 

The so-called “social outcry” started in Chile on 18 October 2019 and transformed the country’s agenda, not only because its citizens demanded it, and because it exposed the activities of public institutions which now, more than ever, were struggling to cope with hitherto unseen scenarios stemming from the demonstrations.

The Chilean social outcry attracted international interest, since it included loss of life and hundreds of people with ocular mutilation, numerous complaints of serious human rights violations, and destruction of public and private infrastructures, among other consequences. As a result, the country received visits from representatives of several international human rights organisations, such as the United Nations High Commissioner for Human Rights, the Inter-American Commission on Human Rights, Amnesty International and Human Rights Watch.

In all these areas, Chilean justice and its actors had to take action, monitored by the justice system and the close scrutiny of an empowered citizenry and the international community. In this context, a series of adjustments and learnings took place, which started to become visible during the first quarter of 2020, and which had their acid test during March of this year.

However, this story had an unexpected twist, which dominated all scenarios and modified all agendas: the SARS-CoV2 Coronavirus, which causes the disease known as Covid19 . A few weeks after the disease reared its head in Chile, it forced a change to the electoral calendar for the beginning of the constitutional process and caused something which was unthinkable just weeks earlier: the end of mass social protest in public spaces. People went home and the streets were empty, in the same way as happened almost all over the world.

But reflection on the changes to the justice system and the lessons learned from the ‘outbreak’ must not stop. In fact, they have become even more essential to resume the fluidity of public activity when the health emergency ends. Nor does the outcry seem to have disappeared, rather it has been put on hold with a few resurgences due to the lack of food during the quarantine. Everything suggests the social and economic impact of the pandemic will exacerbate existing inequalities. Therefore, this period has been an opportunity to integrate our learning and anticipate future scenarios.

In the social protest scenario, one indirect effect was connected to the work of the different actors in the criminal system facing an unprecedented challenge in terms of coverage and operational capacity, because of the notable increase in the number of people detained and processed.

Between 18 October and 13 November 2019, the Chilean Public Criminal Defender’s Office – a public institution that guarantees the right to defence and which is made up of 722 officials and 524 external providers – attended to 20,645 people under arrest, an increase of 25.4% compared to the same period of the previous year.

These increases, however, were even greater during the initial days of the crisis. Between 20 and 28 October, a period during which much of Chile was under a “state of constitutional exception”, the institution registered 10,712 defendants undergoing detention reviews, representing an increase of 70% compared to the same period in 2018. Furthermore, whereas on average there are between 600 and 650 daily detention reviews in the country, at that time they increased to 1,100 daily hearings, reaching a peak of 2,508 detention reviews on 21 October.

Beyond this work, an initial conclusion showed that an indeterminate number of detainees were not assisted by public defenders, either because the Public Ministry had decided not to transfer them to detention review, or because the police did not report that they had been arrested. This meant that there was no jurisdictional control of these activities and there were no records.

This triggered a contingency plan in Public Defence to attend to people detained in the police units, because by institutional design, defenders are in contact with the detainee just before the detention review hearing before the supervisory judge. Although public defenders set up informal service centres in police stations and other police detention facilities, this gave direct coverage to only 105 of the 900 police stations in the country.

This gap need to be filled urgently, since numerous people’s rights have been violated, as described in reports from the human rights organisations who visited the country.

Institutionally, the Chilean Public Criminal Defender’s Office activated different measures, such as strengthening the dissemination of rights , coordinating with the rest of the actors in the system, and opening channels for collaboration with the police, among others.

However, the main initiative that followed the period of social crisis in Chile stemmed from the support lent by EUROsociAL+, European Union programme managed by the FIIAPP, whose specialists are currently collaborating with Public Defenders to prepare a ‘Criminal defence protocol for the initial hours following arrest‘.

Its main objective is to find a means to provide coverage that guarantees the right of detained persons to a defence lawyer in the shortest possible time, thus protecting their right to technical defence. Furthermore, as international organisations that promote and protect human rights have revealed, the presence of a defence lawyer is a safeguard to protect the detained person’s other rights, particularly to prevent torture.

These actions enable comprehensive, effective achievement of the institutional mission to guarantee the right to defence of any accused person at all stages of the criminal process, preventing violation of rights and strengthening judicial detention review, providing public defenders with more tools to appeal against the punitive power of the State on an equal footing before the courts of justice.

The objective is always the same: to reinforce institutional commitment to the rule of law, a peaceful society and democracy in Chile, a task for which we are grateful to have the steadfast, permanent support of European cooperation.

By Andrés Mahnke M., National Defender (Chilean Public Criminal Defender)

In relation to the work done together with the Chilean Public Criminal Defender’s Office, the EUROsociAL+ programme has just published a diagnosis of the criminal defence of people in the first few hours of detention in the Latin American country.

As part of the EVALÚA project led by the FIIAPP and financed by the European Union, a methodological guide to the experimental and behavioural economics methodologies applied to public policy evaluation has been prepared. The author of the guide, Diego Aycinena Abascal, a professor at the Universidad del Rosario in Bogotá and a visiting researcher at the Economic Science Institute at Chapman University in Orange, has compiled some of the most significant findings of behavioural experiments since the discipline was created 50 years ago, with the aim of making these easy for decision-makers to access and use.

What is the impact of biases and non-standard preferences during the COVID-19 crisis?

Classical political economy holds that human beings are what is known as “homus economicus”, which basically means that we make decisions by weighing up the cost and the benefit of our actions, so that the latter outweighs the former. However, since the mid 20th century, experiments have shown that the courses of action that we choose tend to deviate from this model.

Non-standard preferences, non-standard beliefs and non-standard decision-making

These concepts show that human beings do not always behave in a rational manner, because we are influenced by biases, intuitions and false beliefs. One very common behaviour is loss aversion (bias) which implies we would rather not lose now than gain more later. Myopic loss aversion is a combination of the above with risk, and can prompt us to act in ways that lead to a negative medium-term result. Our perception of loss is completely different to our perception of profit when a risk is involved, as shown by the theory of the prospects. When faced with a risk, we would rather not lose now rather than make a profit later. Otherwise put, when faced with a potential loss, we take risks, but when presented with a possible gain, we look for security.

Present bias and self-control problems involve inconsistent behaviours and show that our willpower has limits. We might make a decision and then put it off more or less indefinitely. This frequently manifests in spending money to make up for a lack of motivation or action, for example, by buying “miracle products” instead of starting the diet we had planned.

Observation of social norms suggests that when choosing a course of action, we consider more than the potential losses and gains. We also consider whether the action is in line with what our peers (our social circle) tend to do and consider appropriate in such a situation. Because of this, our decisions are influenced greatly by the societies in which we live, which can weigh more than result of the cost/benefit equation.

Hindsight bias is the tendency for people with knowledge of an outcome to falsely believe that they would have predicted the outcome of an event, exaggerating the similarity between their ex-post beliefs and their beliefs prior to an informational event.

Prominence preference, although an irrational strategy, steers people to choose the most striking option or one that stands out for spurious reasons, such as aesthetics or a prominent physical position (supermarket shelf, for example).

Ultimately, many of these phenomena (self-control issues, social preferences, social norms, over-projection of preferences) can be chalked up to emotions and feelings. Psychological literature reveals the role of emotions as a mechanism that mediates our behaviour. However, these psychological findings have recently begun to be incorporated into public policy.

Biases, false beliefs and non-standard preferences during the COVID-19 crisis

They influence our decisions and daily lives more than we think. For example, since the pandemic appeared we have seen loss aversion bias influence many governments’ decision-making, particularly in the beginning, when they were still ignorant of the magnitude of what lay ahead. Many put off imposing draconian isolation measures for fear of economic hardship, failing to grasp that the initial losses would avoid having to pay a high price later on. This is closely related to the prospect theory, which includes the previous bias in a risk situation. Other biases like optimism and the illusion of control have also been common, causing many people to resort to futile remedies, pseudo-science and superstition, and the spread of an enormous number of hoaxes and lies about the pandemic.

The hindsight bias stated above is frequent, among the multitude of opinions around us, to the extent that one might be forgiven for thinking that almost everyone already knew what was going to happen and which would be the best decisions to make right from the start.

Social norms have clearly influenced our behaviour during confinement, with non-compliance or stricter compliance with the rules conditioned by what has been happening in the immediate environment (family, neighbourhood, municipality).

We have also seen some political or social leaders urging disobedience with regulations, questioning their effectiveness or legitimacy, albeit on a more psychological than economic level. Authority bias makes people predisposed to believing that if an authority gives us permission to break the law and even cross the moral line, we feel prone to do so, which has recently happened in certain cases.

The optimistic bias leads us to project our own wishes onto objective data. As already mentioned, which has been observed during the de-escalation. We tend to think that the risk is lessening, causing people to stop taking precautions which are clearly necessary if we analyse the data carefully.

These are just a few examples of how we behave irrationally and take irrational decisions, both large and small. Understanding this irrationality and the mental shortcuts we make can be helpful when we make personal decisions, but it is crucial for public policy decision makers.

 What are nudges?

Nudges are behavioural statements frequently used to promote public policies. Nudges are designed to influence our decisions by modifying the decision-making architecture, without substantially modifying incentives or restricting options using premises of behavioural economics.

Nudges have become extremely popular because they are suitable for making low-cost statements based on soft or libertarian paternalism without resorting to prohibitions or restrictions. There are several successful documented cases of statements using nudges, for example, to encourage organ donation, quit smoking through commitments, reduce OR deaths with check-lists, improve loan repayment rates with personalised reminders, increase compliance with tax payments, among others.

However, nudges must be designed carefully, otherwise they may be ineffective, counter-productive or used for other purposes. Some of these biases may lead us to overestimate the likelihood that nudges will be a success. The statements that lead to success get the most attention and those that fail are often ignored or forgotten. In addition, it has been seen that the effects of some statements are short-lived and the lack of long-term improvement is ignored. Therefore, the likelihood of success of a behavioural statement or a nudge is only as good as the behavioural foundation on which it is based.

Behavioural experiments applied to public policies.

Behavioural experiments have been widely used in consumer affairs, political marketing, investment and finance, and other fields. Their application to public policy, in terms of design, management and evaluation, is far more recent. However, there is some experience that allows us to extract some important learnings:

1. Experimental data is replicable insofar as it allows knowledge to be built based on previous findings. This facilitates a cumulative and systematic process of experimental learning. Consequently, a store of generalised knowledge is built that supports the design of public policiesand makes them relevant and viable.

2. The findings of these experiments allow us to observe variables directly, something that would not be possible otherwise. For example, observing antisocial behaviours that people would try to conceal outside the laboratory (it would only be possible to observe complaints), such as taking money earned by third parties, or filing false income statements to avoid taxes and obligations.

3. Field experiments can be used in an enormous number of subject areas, for example, they have been successful for evaluating actions aimed at increasing electoral participation, measuring corruption in educational qualifications, measuring reductions in water or energy consumption and to increase recycling and determine responses to improve tax compliance.

4. There are different types of experiments. By their nature, laboratory, artefactual, and framing experiments are cheaper and have a comparative advantage in helping us understand mechanisms and giving us valuable information before implementing a policy or programme through scale testing. Experiments in the natural field have a comparative advantage for evaluating the impact of previously implemented policies and programmes, and for accurately measuring their effects on the specific population of interest in its natural context. Their approaches can be complementary, as has been seen in combinations of artefactual field experiments with natural field experiments.

The Methodological Guide is a tool available to institutions to help select the most suitable type of experiment and for dissecting the roadmap for implementation, defining the steps for development and describing the advantages and limitations.