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Abstract

Guatemala has historically been burdened with one of the lowest levels of tax collection in Central America, while its tax structure is heavily biased towards organised business. This article analyses the role of interest group mechanisms in influencing Guatemalan tax policy. By extending the Stigler-Peltzman model of regulatory capture, the paper first provides a theoretical explanation for the persistent influence of interest groups on tax collection. Next, we will apply these theories to Guatemala’s tax setting and analyse the attempted tax reforms of three Guatemalan administrations between 1996 and 2007 to demonstrate the methods employed by interest groups to prevent tax reforms from occurring. The paper argues that Guatemala's business groups operated through two primary mechanisms to stall reforms. Firstly, they hold close ties to political parties through campaign contributions and by providing staff-members. Secondly, they extend their influence through misinformation campaigns, which are aimed to draw in other societal players and convince them to protest against tax reforms that would have actually benefitted them. Guatemala is thus faced with the sad reality of an influential business sector that maintains its tax privileges both through financial contributions and the active campaigns of society’s poorest.