Laffer Curve and Kast-Quiroz Reform Effects of Corporate Tax Reduction on Revenue and Equity in Chile
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This article analyzes the tax reform proposal of President José Antonio Kast's government — referred to herein as the 'Kast-Quiroz Reform' — which contemplates the gradual reduction of the first-category corporate income tax from 27% to 23%, the reintegration of the tax system, and the elimination of capital taxation. A calibration of the Trabandt and Uhlig (2011) model for Chile (ε = 0.30) estimates a net corporate revenue loss of 13.42%, equivalent to approximately 0.47% of GDP, with a self-financing rate of only 9.45% and a fiscal neutrality elasticity (ε* = 3.17) that is empirically implausible. A three-scenario sensitivity analysis (ε ∈ {0.10, 0.30, 0.50}) confirms the robustness of the conclusions. The article further examines the distributive impact of reintegration on Chile's Gini coefficient — given that Chile is the most unequal country in the OECD with a corrected Gini of 0.59 — and the interaction of the reform with the Structural Balance Rule (Law N°21.683), whose dual-rule architecture makes a permanent revenue loss incompatible with the committed fiscal convergence path. The article concludes that the reform will worsen the structural deficit of 3.55% of GDP, with transitory compensatory measures insufficient to contain the deterioration.
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