Global Uncertainty in the Evolution of Latin American Income Taxes

Abstract

In this chapter, we explore how the global uncertainty of the 1920s and 1930s affected internal struggles to enact a personal income tax in countries heavily dependent on the export of natural resources in Latin America. Falling prices and deep-seated uncertainty both created the opportunity to enact income taxes and undermined their evolution, setting a pattern for subsequent decades. Income taxation was introduced to offset falling revenue, but its success was conditional on a long-term compromise between state and economic actors. The income tax became a short-term solution, as this compromise could not overcome collective action problems present in the labor market that limited the tax base and its productivity. We end by discussing how these struggles left a legacy of class income taxes that was later compensated through invisible mass value-added taxes (VAT), resulting in a regressive and politically invisible fiscal pact.