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Top Income Shares, Business Profits, and Effective Tax Rates in Contemporary Chile

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  • Tasha Fairfield
  • Michel Jorratt De Luis

Abstract

We contribute to research on inequality and world top incomes by presenting the first calculations of Chilean top income shares and effective tax rates using individual tax return microdata from 2005 and 2009. We pay special attention to business income, which dominates at the top. Our analysis includes not only distributed profits, but also the large proportion of accrued profits retained by firms, which are rarely analyzed given the difficulty of identifying individual owners. Our most conservative top 1 percent income‐share estimate is 15 percent—the fifth highest in the top incomes literature. When distributed profits are adjusted for evasion, the top 1 percent share reaches 22–26 percent. When we broaden the income concept to include accrued profits, which we impute to taxpayers using ownership shares calculated from business tax forms, the top 1 percent share increases to a minimum of 23 percent. Despite this impressive income concentration, the top 1 percent pays modest average effective income‐tax rates of 15–16 percent.

Suggested Citation

  • 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(S1), pages 120-144, August.
  • Handle: RePEc:bla:revinw:v:62:y:2016:i:s1:p:s120-s144
    DOI: 10.1111/roiw.12196
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    Cited by:

    1. Thomas Blanchet & Lucas Chancel & Amory Gethin, 2019. "How Unequal is Europe? Evidence from Distributional National Accounts, 1980-2017," World Inequality Lab Working Papers hal-02877000, HAL.
    2. Jorge Atria & Ignacio Flores & Claudia Sanhueza & Ricardo Mayer, 2018. "Top Income in Chile: A Historical Perspective of Income Inequality (1964- 2015)," World Inequality Lab Working Papers hal-02878312, HAL.
    3. Javier Cortes Orihuela & Juan D. Díaz & Pablo Gutiérrez Cubillos & Pablo A. Troncoso, 2023. "Intergenerational earnings persistence and the provision of public goods: evidence from chile’s constitutional process," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 21(1), pages 47-81, March.
    4. Jose De Gregorio & Manuel Taboada, 2022. "Median Labor Income in Chile Revised: Insights from Distributional National Accounts," Working Papers wp532, University of Chile, Department of Economics.
    5. Athiphat Muthitacharoen & Trongwut Burong & Athiphat Muthitacharoen, 2023. "Climbing the Economic Ladder: Earnings Inequality and Intragenerational Mobility among Thai Formal Workers," CESifo Working Paper Series 10202, CESifo.
    6. Alvaredo, Facundo & Bourguignon, François & Ferreira, Francisco H. G. & Lustig, Nora, 2023. "Seventy-Five Years of Measuring Income Inequality in Latin America," SocArXiv 7ckzg, Center for Open Science.
    7. Gabriel Burdín & Mauricio de Rosa & Andrea Vigorito & Joan Vilá, 2019. "Was falling inequality in all Latin American countries a data-driven illusion? Income distribution and mobility patterns in Uruguay 2009-2016," Documentos de Trabajo (working papers) 19-30, Instituto de Economía - IECON.
    8. Thomas Blanchet & Ignacio Flores & Marc Morgan, 2022. "The weight of the rich: improving surveys using tax data," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(1), pages 119-150, March.
    9. Li, Chengyou & Yu, Yangcheng & Li, Qinghai, 2021. "Top-income data and income inequality correction in China," Economic Modelling, Elsevier, vol. 97(C), pages 210-219.
    10. Wojciech Kopczuk & Eric Zwick, 2020. "Business Incomes at the Top," Journal of Economic Perspectives, American Economic Association, vol. 34(4), pages 27-51, Fall.
    11. Muhammed Abdul Khalid & Li Yang, 2019. "Income Inequality and Ethnic Cleavages in Malaysia: Evidence from Distributional National Accounts (1984-2014)," Working Papers hal-02876992, HAL.
    12. Kopczuk, Wojciech & Alstadsæter, Annette & Jacob, Martin & Telle, Kjetil, 2016. "Accounting for Business Income in Measuring Top Income Shares: Integrated Accrual Approach Using Individual and Firm Data from," CEPR Discussion Papers 11671, C.E.P.R. Discussion Papers.
    13. Annette Alstadsæter & Martin Jacob & Wojciech Kopczuk & Kjetil Telle, 2016. "Accounting for business income in measuring top income shares. Integrated accrual approach using individual and firm data from Norway," Discussion Papers 837, Statistics Norway, Research Department.
    14. Ramón E. López & Eugenio Figueroa B. & Pablo Gutiérrez C., 2016. "Fundamental accrued capital gains and the measurement of top incomes: an application to Chile," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(4), pages 379-394, December.
    15. Khalid, Muhammed Abdul & Yang, Li, 2021. "Income inequality and ethnic cleavages in Malaysia: Evidence from distributional national accounts (1984–2014)," Journal of Asian Economics, Elsevier, vol. 72(C).
    16. Díaz, Juan D. & Gutiérrez Cubillos, Pablo & Tapia Griñen, Pablo, 2021. "The exponential Pareto model with hidden income processes: Evidence from Chile," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 561(C).
    17. Muhammed Abdul Khalid & Li Yang, 2019. "Income Inequality and Ethnic Cleavages in Malaysia: Evidence from Distributional National Accounts (1984-2014)," World Inequality Lab Working Papers hal-02876992, HAL.
    18. Mauricio de Rosa & Joan Vilá, 2020. "Distributing the missing third: growth and falling inequality in Uruguay 2009-2016," Documentos de Trabajo (working papers) 20-05, Instituto de Economía - IECON.
    19. Gonzalez, F & Prem, M, 2021. "The Legacy of the Pinochet Regime," Documentos de Trabajo 19446, Universidad del Rosario.
    20. Ignacio Flores & Claudia Sanhueza & Jorge Atria & Ricardo Mayer, 2020. "Top Incomes in Chile: A Historical Perspective on Income Inequality, 1964–2017," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(4), pages 850-874, December.
    21. Arjan Bruil (CBS) & Céline van Essen & Wouter Leenders & Arjan Lejour & Jan Möhlmann & Simon Rabaté, 2022. "Inequality and Redistribution in the Netherlands," CPB Discussion Paper 436, CPB Netherlands Bureau for Economic Policy Analysis.
    22. Elisabeth Bustos-Contell & Salvador Climent-Serrano & Gregorio Labatut-Serer, 2017. "Offshoring in the European Union: a Study of the Evolution of the Tax Burden," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 11(2), June.
    23. Burdín, Gabriel & De Rosa, Mauricio & Vigorito, Andrea & Vilá, Joan, 2022. "Falling inequality and the growing capital income share: Reconciling divergent trends in survey and tax data," World Development, Elsevier, vol. 152(C).
    24. Mauricio De Rosa & Joan Vilá, 2022. "Beyond tax-survey combination: inequality and the blurry household-firm border," Documentos de Trabajo (working papers) 22-10, Instituto de Economía - IECON.
    25. Pablo Gutiérrez Cubillos, 2022. "Gini and undercoverage at the upper tail: a simple approximation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(2), pages 443-471, April.

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