There will be growth with less uncertainty.

The reconstruction plan rests on a questionable premise: that a tax reduction will be sufficient to reactivate investment, boost growth, and open a new economic cycle. The evidence regarding the effects of corporate tax cuts is, at best, ambiguous. In some contexts, they may stimulate investment; in others, improved cash flow may lead to increased dividends or stronger balance sheets without necessarily translating into new productive projects. Companies do not automatically invest simply because the corporate tax rate has decreased. While there may be projects that become viable thanks to the tax reduction, companies invest when there are profitable opportunities, expected demand, regulatory stability, access to financing, timely permits, and a reasonable timeframe for recovering the invested capital. This is especially true in Chile. Most investment is made by medium and large companies that, for reasons of good corporate governance, do not make new project decisions in impromptu meetings or based on tax enthusiasm. Good practices include investment committees, technical evaluations, financial analyses, market studies, and regulatory perspectives. The tax burden is important, but it is rarely the only decisive factor. For investment to materialize, companies need to reduce uncertainty about the rules of the game and know whether the decision to invest today will remain valid in five or ten years. In an uncertain environment, the rational decision for a company may be to wait. This is the weak point of the reconstruction plan. In a complex international context, with significant fiscal adjustments and little room for monetary easing, the government is betting its ability to reactivate the economy on tax reductions. This is optimistic if the uncertainty surrounding the instrument – the tax reduction – is not reduced. Trust is not decreed; it is built through broad agreements, stable rules, and an economic policy capable of surviving the electoral cycle. Today, the plan does not dispel these doubts. Because it was not built on a broad political base, it is vulnerable to having its core elements modified or reversed within a five- or ten-year timeframe. For long-term investments, this institutional fragility matters and reduces the impact on investment. The agenda does not consider promoting innovation, which is what generates potential growth. The tax reduction generates an increase in the desired level of capital, and therefore, temporarily, more growth. However, without greater regulatory certainty or a sustainable modernization of the permitting system, companies will not react mechanically to the tax reduction. Econometric studies cannot capture this, but it indicates that the effects on growth will be smaller than estimated. By Guillermo Larraín, FEN Universidad de Chile NEWSLETTER Opinion Saturday, AM Conflicting ideas, opposing viewpoints, and clear analysis: elements to reveal the issues that divide opinions and will shape the agenda. By subscribing, you are accepting the Terms and Conditions and the Privacy Policies of La Tercera.