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Multi-dimensional Review of Panama

Volume 2: In-depth Analysis and Recommendations

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Panama has achieved socio-economic improvements in recent decades thanks to strong economic growth and consequent poverty reduction. Its growth model is characterised by a dual economy in which a small number of activities, including those related to the Canal and Special Economic Zones, have exhibited high productivity growth but limited job creation.

Panama should now embark on a new reform agenda to become a sustainable and inclusive high-income country. This report urges greater productivity in sectors that contribute to job formalisation to reduce disparities in income and among regions. As developing these policies requires further resources, taxation system and private sector involvement through public-private partnerships should also be reinforced. Focusing on skills and jobs, regional development and development financing, the volume provides analysis and recommendations on three areas which are key for Panama.

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Improving the taxation system and promoting private sector involvement to support financing for development

OECD Development Centre

The preceding chapters laid out an ambitious agenda for inclusive development in Panama. To finance this development, Panama will need to significantly increase public expenditure and mobilise private investment. Current taxation levels are relatively low compared with other Latin American economies and are well below those of Organisation for Economic Co‑operation and Development (OECD) economies. A better-structured taxation system, coupled with a stronger tax administration, should yield greater fiscal revenues. In addition, improvements in the regulatory and institutional framework for public-private partnerships should promote private investment for development. This chapter first summarises the revenues necessary to finance development, then presents the current fiscal framework to guarantee the solvency of the state. Third, it proposes alternative ways of increasing tax revenues that could preserve competitiveness while making the tax system more equitable. It then proposes a new framework for public-private partnerships to mobilise private investment for inclusive development and finally closes with a conclusion and policy recommendations.

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