3 - Chile

Summary

Considering that Chile is among the wealthiest countries in Latin America, its tax revenues are low. Its tax burden in recent years has been far below those of Argentina and Brazil and is even surpassed by those of some much poorer countries, like Bolivia, Ecuador and Honduras. A law passed in 2014 promised to boost revenues significantly, but as of 2017 it had not done so. This chapter seeks to explain Chile’s light tax burden. Resource extraction plays an important role in Chile’s economy, but it cannot explain the country’s light tax burden since fiscal revenues from this source are modest. The central argument is that light taxation reflects the indirect impact of a major redistributive reform wave during the early 1970s that unwittingly tilted the balance of power in Chilean society in favor of anti-statist forces in an enduring manner. It did so in the short term by providing the impetus for a radical state retrenchment program under military auspices, and in the longer term by fomenting the rise of actors and institutions capable of sustaining anti-statism as an influential force under more democratic conditions.