After World War II, the new king, Mohammad Reza Shah, faced a country in crisis. He took his first trip to the United States and was greeted warmly by the American public. Upon his return, however, he had to confront the rising tide of dissent, from Communists to Islamists. It was in this context that Iran pursued a bill to nationalize its oil industry. America tried to serve as mediator between Britain and Iran, but it ended up on the wrong side of the dispute. A coup removed Prime Minister Mohammad Mosaddeq from power and tarnished the shah’s rule, and America’s image, thereafter.

This chapter examines the consolidation of Pahlavi rule after the removal of Reza Shah from power, especially after 1953, when the reign of Mohammad Reza Pahlavi was reestablished following a CIA-sponsored coup. The chapter explores the tenuous beginnings of the reign of the new Shah, the increasing legislative and policy-making significance of the Majles in the 1940s, and the era of oil nationalization, from 1951 to 1953. Prime Minister Mohammad Mosaddeq was successful in getting the powers of the monarchy to be significantly reduced, but his overthrow was followed by the restoration of absolute monarchy built on a massive army and a feared secret service called SAVAK. Ultimately, however, the Pahlavi state failed to incorporate within its orbit and its social base remained weak. As the oil revenues began to lag, and the state was forced into making “housecleaning” concessions, it began to crumble under the weight of the gathering storm.

Even more than Chile, Mexico is a case of light taxation. Although its tax burden has increased recently, it remains well below the regional average. Non-tax revenue from PEMEX helps explain this situation, but it is not simply a product of reliance on oil. This chapter develops a political explanation of Mexico’s light taxation, which argues that the causal dynamics behind it are similar to the ones operating in Chile in two crucial respects. First, light taxation reflects a sustained power imbalance favoring anti-statist actors. Second, this imbalance is largely an unintentional, path-dependent consequence of efforts by a left-leaning government to redistribute property in favor of workers. The key reformist episode, which occurred during the mid-1930s, set in motion a reactive sequence whose result, strong business organization and the coming together of economic elites and social conservatives in a relatively cohesive anti-statist bloc, was subsequently reproduced through self-reinforcing mechanisms involving ideas and power. This bloc has held together under both authoritarian and democratic conditions, frustrating efforts to raise taxes and expand the public sector.