Perceived Inequality as an Impediment to Mass Taxation: Evidence From Latin America

Despite high rates of inequality, direct taxation in Latin America remains limited, constraining both the magnitude of fiscal redistribution and the expansion of welfare systems. This article presents a novel explanation for the persistence of this pattern in democratic settings. Drawing on the literature on inequality, fairness and fiscal policy preferences, I argue that higher levels of perceived inequality reduce support for a broad-based income tax, thereby weakening the incentives for governments to implement policies towards mass taxation. An empirical analysis based on public opinion data from 18 countries and a newly developed measure of perceived inequality provides strong support for this argument. These findings offer new insights into public finance challenges in Latin America, which depart from the conventional focus on the power of elites and advance our understanding of the viability of tax reforms across the region.