Conflicting Claims and Taxation: A Distributive History of 20th Century Peru

Over the past century, Peru has experienced sharp distributive shifts shaped by external dependency, political cycles, and changing power relations between labor and capital. Yet long-run evidence linking factor income shares, profitability, and taxation in the country has remained limited.

In this paper, César Castillo-García reconstructs Peru’s factor income shares and macroeconomic aggregates from 1942 to 2022 using the Distributional National Accounts (DINA) methodology and historical national accounts data. Drawing on official statistical sources and adopting a Marxist political economy approach, he analyzes how structural conditions, political institutions, and fiscal regimes have shaped the rate of profit (defined as profits relative to the sum of the capital stock and wages), accumulation, and inequality over the long run.

KEY FINDINGS

• Peru has developed one of the most regressive tax systems globally, characterized by low top marginal rates on income (which have returned to their pre-1970s levels of 30%) and inheritance (set at 0% since 1979) and limited redistributive capacity.
• The wage share has declined relative to profits over time, driven by a widening wage–productivity gap—with productivity growing at an average annual rate 1.6 times that of the average real wage between 1942 and 2022—and by a rising rate of exploitation, particularly since the 1990s. By 2022, the gap had reached 68% of the average labor cost, reflecting an accumulated divergence of around 50% since 1942.
• Periods of profitability recovery are closely associated with neoliberal policy shifts and the growing influence of business associations, marking distinct phases of neoliberalization. The most pronounced increase occurred during the 1990s Fujishock, when capital profitability rose by 3.28%.
• Profitability in Peru is also strongly correlated to structural external factors, particularly the terms of trade, reflecting the country’s persistent external dependence.
• Econometric results show that both structural determinants (such as the organic composition of capital or ratio of capital stock and wages and terms of trade) and political determinants (notably the rate of exploitation) play a central role in shaping long-term profitability dynamics, with the latter producing an average increase of 2.23 percentage points in capital profitability.

AUTHOR

• César Castillo-Garcia, Wesleyan University