Abstract
Latin American tax systems throughout the post-World War II period proved dysfunctional for economic development. The Chilean pre-1973 tax system was no exception, displaying many of the deficiencies previously outlined: a bewildering number of taxes, special regimes, exemptions, and tax expenditures; a highly unstable system, with new taxes being created to cover particular revenue shortfalls; a system highly vulnerable to inflationary episodes; lack of horizontal equity or fairness; very inefficient in terms of resource allocation, and so on.
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Notes
This did not mean that the budget would result in a surplus every year or that there would never be fiscal deficits. It simply meant that the maintenance of an appropriate level of structural surplus would only permit temporary fiscal deficits up to desired levels. Preparing the budget under this policy rule, the government would have to determine the maximum growth of structural spending compatible with a structural surplus of 1 percent of GDP. For that, economic authorities would have to make a projection of structural revenues during the period, which depended on the projected gaps between potential and actual GDP and between short-and long-term copper prices. “Structural” here means that the policy is adjusted for the business cycle and fluctuations in the price of Chile’s main export commodity (and large source of government revenue), copper. For an in-depth analysis and description of the methodology used to calculate “structural balance” as well as the theoretical economic benefits of the rule, see: Mario Marcel, Marcelo Tokman, Rodrigo Valdes, and Paula Benavides, “Balance Estructural: La Base de la Nueva Regla de Politica Fiscal Chilena,” Economia Chilen. Vol. 4 (3), December 2001.
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© 2011 Omar Sanchez
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Sanchez, O. (2011). Post-Pinochet Chilean Tax Policy (1989–1995): Finding Resources to Build a Social Democracy. In: Mobilizing Resources in Latin America. Palgrave Macmillan, New York. https://doi.org/10.1057/9780230119659_2
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DOI: https://doi.org/10.1057/9780230119659_2
Publisher Name: Palgrave Macmillan, New York
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