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Poverty and Inequality in Chile 1990-1998: Learning from Microeconomic Simulations

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  • David Bravo
  • Dante Contreras
  • Sergio Urzúa

Abstract

This paper contributes to understand the microeconomic determinants of household income dynamics in poverty and inequality in Chile during the 90’s . We use a microsimulation based on the decomposition of distributional changes, developed by Bourguignon et.al. (2000). We estimate a participation model and an earnings equation for each economic agent. We examine how income distribution and poverty would change as a result of a different set of microsimulations. In particular, the distributional structure of 1998 is imposed in 1990. The evidence suggest that while poverty responds strongly to the simulation exercises, the distribution of income appears less sensitive, and is therefore more stable. In particular, we can state that a reduction in poverty would have been observed in 1990 if the returns to education, the regional effects, the structure of non-observables, and the endowments of 1998 had been present. The opposite would have occurred in the case of considering the “returns on experience” and the structure of participation. With respect to the income distribution, in spite of its stability, the most interesting results come from a dynamic perspective. The observed inequality indicators remain at the same level between 1990 and 1998, but if 1998 prices had been observed in 1990, then an increase in inequality would have been registered. The changes in the return to education (and in its convexity) and the structure of participation also increase inequality. The effect of non-observables, in contrast, would have meant a better distributed income distribution in 1990.

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Bibliographic Info

Paper provided by University of Chile, Department of Economics in its series Working Papers with number wp198.

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Date of creation: Oct 2002
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Handle: RePEc:udc:wpaper:wp198

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Web page: http://www.econ.uchile.cl/
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Keywords: Income distribution; poverty; demographics; micro-simulations;

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  1. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  2. Ferreira, Francisco H. G. & Paes de Barrios, Ricardo, 1999. "The slippery slope : explaining the increase in extreme poverty in urban Brazil, 1976-96," Policy Research Working Paper Series 2210, The World Bank.
  3. Katz, L.F. & Murphy, K.M., 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," Harvard Institute of Economic Research Working Papers 1580, Harvard - Institute of Economic Research.
  4. Dante Contreras & Osvaldo Larrañaga & Julie Litchfield, 2001. "Poverty and Income Distribution in Chile: 1987-1998 New Evidence," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 38(114), pages 191-208.
  5. Dante Contreras & Esteban Puentes & David Bravo, 2005. "Female labour force participation in greater santiago, Chile: 1957-1997. A synthetic cohort analysis," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(2), pages 169-186.
  6. Sen, Amartya, 1997. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198292975, October.
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