El Salvador Tax Reform Boosts Revenues for Development

 

More than a decade after peace accords ended El Salvador’s civil conflict, a new government took office in June 2004, confronted with the challenge of putting a struggling economy back on course. Despite postwar efforts to rehabilitate basic infrastructure and expand access to social services, the new administration faced major fiscal demands between the response to the 2001 earthquakes and the cost of moving to a fullyfunded pension system. More resources were needed to sustain these efforts, yet in 2004, El Salvador’s tax revenues were less than 12 percent of GDP, among the lowest in Central America – due to rampant evasion and public distrust of government.