In countries with lower cost of labour, reducing or removing taxes on software companies will lead to folks starting outsourcing and service related companies. Not entrepreneurial product based startups.
India is a prime example of this. Compared to the number of software developers in the country, the number of startups that pop up from India is very very low.
So from Chile's point of view, I think its a great pilot plan.
I don't see why lower taxes will reduce entrepreneurship there or introduce only outsourcing -- won't the locals use this chance to create their own startups ?
There are many things to discuss here but I assume some countries either culturally or financially encourage enterprises. If Chile doesn't have the right legal, tax and socio-educational framework then startups will never migrate there.
There are just too many aspects to look at but I do believe that a contest with some $40K prizes can't beat lowering taxes.
IMO that is just another type of startup.