Argentina's crushing tax burden has driven 44.1% of its workforce into the informal economy, according to new research published June 11, 2026 by economists Iván Cachanosky and Geoffrey Lawrence at Reason Foundation. The analysis finds that overlapping taxes create an effective corporate tax rate exceeding 106% of typical business earnings—the second-highest in the world, behind only the tiny island nation of Comoros. This level of taxation doesn't just discourage growth; it makes full compliance mathematically impossible and pushes millions of Argentines into the shadows.
The report breaks down a Byzantine system where 155 different taxes fall on businesses and families, though just seven account for 87% of total revenue. Employer and employee social security contributions together amount to between 35% and 41% of wages, with income tax layered on top for registered workers. The researchers compared household survey data from Argentina's National Institute of Statistics and Census (INDEC) with variations in provincial gross receipts taxes, finding that higher tax pressure strongly correlates with increased labor informality. In the construction sector, each additional percentage point of taxes corresponds to an 8.5% increase in informality, even after accounting for mitigating factors. This means every tax increase generates less total revenue because people shift to informal arrangements very quickly.
The report argues that "this level of taxation destroys any incentive to invest or undertake entrepreneurship" while creating a tax wedge that leads workers to conclude they can improve their take-home pay by accepting informal arrangements and hiding income. According to Lawrence, the lead author, lowering taxes doesn't have to be "an act of faith" but can follow a gradual, data-driven approach that gives the private sector time to respond before moving to subsequent phases. The authors write that millions of Argentines have "taken refuge in the margins of society to escape these overlapping taxes, emptying the tax base," while President Javier Milei recently discussed similar reform ideas in broad terms.
The informal economy creates a vicious cycle that limits growth opportunities across the entire country. Informal or non-compliant companies have limited access to credit and few incentives to invest in machinery or train workers, since their main goal is concealing their activity rather than expanding it. The report explains that while going informal may be rational for individual workers facing perverse incentives, the resulting macroeconomic structure traps the country in low productivity. The authors recommend a three-phase reform: replacing provincial gross receipts taxes with a simple consumer sales tax while reducing national VAT to 10%, then eliminating distortive trade taxes, and finally cutting income tax and social security contribution rates. A tax amnesty program included in labor modernization law passed in March 2026 would allow companies hiring previously informal workers to pay just 2% in employer contributions for up to four years.
The report concludes these changes could bring Argentines "out of the shadows where they hid from an unworkable tax regime" and represent a profound cultural shift where citizens no longer feel compelled to conceal their lives and income. The authors note that Argentina was once one of the richest countries in the world and "can be again" with the right policy environment. The bottom line: mutual trust could once again become a defining feature of Argentine life, but only if the tax system stops forcing nearly half the workforce to operate outside the law just to survive.