Chile Reverts to Pro-Growth Policies After 15 Years of Economic Stagnation

Chile is reportedly returning to the economic policies that fueled decades of high growth, a path it had deviated from over the past 15 years. Following the election of José Antonio Kast, the Senate recently approved his National Reconstruction Law. This legislation aims to reduce taxes and regulations, thereby enhancing legal certainty for investors. The initiative is expected not only to stimulate the Chilean economy but also to serve as a model for neighboring countries to adopt more liberalizing policies.

During Chile's recent period of economic divergence, the previously consensus-backed economic model faced significant questioning. An increased role for the state, particularly intensified under the previous Gabriel Boric administration, is cited as a cause for poor economic and social outcomes. Chile's average annual economic growth reportedly fell from 4% between 1990 and 2013 to 1.1% from 2014 to the present, with productivity being negative in most years since 2012. Public spending and taxes have risen, while regulations have multiplied. The number of government ministries increased from 18 in 1990 to 25, despite a perceived decline in public services. Public debt has also surged from 17.3% in 2015 to 41.5% currently.

Regulatory burdens have significantly increased, with environmental impact study processing times extending from 355 days in 2008 to 1,175 days in 2025. Labor costs have risen by approximately 50% in the last decade, partly due to a substantial increase in the minimum wage and a reduction in the standard working day, contributing to a 9.4% unemployment rate. A key achievement of the new law is the reduction of the corporate tax rate from 27% to 23%, the first such decrease in over 36 years. This reduction is seen as significant because it addresses a tax identified as a major contributor to declining investment, alongside issues like complex permitting processes, persistent fiscal deficits, and pension fund withdrawals. Public opinion polls indicate a majority of Chileans now criticize state bureaucracy and favor reducing public spending, suggesting broad support for the government's direction.