The Challenges of Maintaining and Reforming Taxation Systems in Contemporary Latin America: Lessons From Mexico and Chile

What are the main challenges facing taxation systems in contemporary Latin America? After outlining the origins of recent changes in the region’s fiscal configuration, we focus on three themes to answer this research question. First, we clarify the principal difficulties affecting taxation frameworks in these countries, which have led their governments to favor tax reforms and emphasize value added taxes. Second, we isolate two important obstacles to taxation reform in Latin America. We then present case studies of the fate of the Chilean (1991) and Mexican (2001) tax reform proposals. Findings suggest that, in order to facilitate the successful implementation of tax reforms, governments of Latin American countries should establish a clear “fiscal connection” between tax increases and improvements in public spending. Furthermore, results underline the usefulness for governments to utilize a socially inclusive discourse—preferably emphasizing the fiscal symbolism of value added taxes-and engage in coalition building with opposition parties in parliament when conducting significant fiscal transformations. We conclude by recommending that these findings be studied across a greater number of cases, in order to verify whether a political strategy relying on these elements would represent a systematically useful tool for conducting fiscal reform in Latin America.