Despite high rates of inequality, direct taxation in Latin America is typically limited, constraining both the magnitude of fiscal redistribution and the expansion of national welfare systems. This article presents a new explanation for the persistence of this pattern in democratic settings. Drawing on the literature on inequality and fiscal preferences, I argue that higher levels of perceived inequality reduce support for a broad-based income tax, thereby weakening the incentives for governments to enact policies towards mass taxation. An empirical analysis combining extensive public opinion data and a new measure of inequality perceptions provides evidence consistent with this argument.
By adopting a demand-side perspective for fiscal capacity building, the findings offer new insights into contemporary public finance challenges in Latin America, which depart from the conventional focus on elites’ power and advance our understanding of the viability of tax reforms across the region. Additionally, the article contributes to the burgeoning literature on perceived inequality as a key concept for understanding the dynamics of states and societies and presents new evidence on intra-regional differences in subjective inequality levels across Latin America.
