Fiscal Contracting in Latin America

Latin America has long been characterized as a region of high income inequality. In recent years, however, many Latin American countries have seen a decrease in income inequality and poverty levels and an increase in economic mobility. Fiscal policies have played a role in achieving these results. One important explanation for changing fiscal policies is the increasing economic and political role played by the growing middle class in shaping the level and quality of collective goods and services and the types of taxes and relative tax burdens to fund these expenditures. Through a process we call “fiscal contracting,” less unequal societies may be willing to pay more in taxes for expanded, relatively universal public services.