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Distributional effects of eliminating the differential tax treatment of business and personal income in Chile

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  • Agostini, Claudio
  • Martínez A., Claudia
  • Flores, Bárbara

Abstract

This paper estimates the distributional effects that would result from eliminating the differential tax treatment of business and personal income in the Chilean tax system, as well as from the elimination of the main personal income tax exemption, the one for voluntary retirement savings. The results of the analysis show that, while the majority of taxpayers benefitting from this exemption are in the upper income brackets, its elimination would not make the income tax more progressive. As to removing the favourable tax treatment for corporate income, the distributional effect is of relevant magnitude and the income tax becomes significantly more progressive. Generally speaking, the results suggest that income taxation in Chile is less progressive than it appears and that it is feasible to give it a more important redistributional role in reducing income inequality.

Suggested Citation

  • Agostini, Claudio & Martínez A., Claudia & Flores, Bárbara, 2012. "Distributional effects of eliminating the differential tax treatment of business and personal income in Chile," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    • Handle: RePEc:ecr:col070:11611
    Note: Includes bibliography
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    Cited by:

    1. Bernardo Candia & Eduardo Engel, 2018. "Taxes, Transfers and Income Distribution in Chile: Incorporating Undistributed Profits," Commitment to Equity (CEQ) Working Paper Series 82, Tulane University, Department of Economics.
    2. Tasha Fairfield, 2015. "La economía política de la reforma tributaria progresiva en Chile," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 17(32), pages 129-156, January-J.
    3. Branko Milanovic & Tasha Fairfield & Michel Jorratt De Luis, 2016. "Top Income Shares, Business Profits, and Effective Tax Rates in Contemporary Chile," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62, pages 120-144, August.
    4. Claudio Agostini & Pablo Correa & Carla Maldonado & Max Spiess, 2021. "Hoja en blanco: hacia una nueva institucionalidad y régimen tributario para Chile," Estudios Públicos, Centro de Estudios Públicos, vol. 0(161), pages 153-186.
    5. Fairfield, Tasha & Jorratt, Michel, 2014. "Top income shares, business profits, and effective tax rates in contemporary Chile," LSE Research Online Documents on Economics 56016, London School of Economics and Political Science, LSE Library.
    6. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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