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An Analysis of the Effect of Fiscal Expenditure on the Income Distribution of Chilean Households

Author

Listed:
  • Nicolás Garrido

    (Universidad Andrés Bello)

  • Jeffrey Morales

    (Pontificia Universidad Católica Chile)

Abstract

This study analyzes the effect of government spending on income distribution in Chile for 2016 using a multiplier model with the Social Accounting Matrix. The results indicate that increasing fiscal expenditure has a regressive effect on the income share of households in the richest quintile and widens the income gap between the two poorest quintiles and the third and fourth quintiles. When the effect of fiscal expenditure is measured by its nominal impact, households with the highest income receive approximately ten times more income than those with the lowest income. Thus, the regressivity of the income share of the richest households conceals an unequal distribution of the nominal income generated by the fiscal expenditure. Using counterfactual simulations, we suggested that fiscal expenditures could become more equalitarian through policies affecting the distribution of labor payments.

Suggested Citation

  • Nicolás Garrido & Jeffrey Morales, 2023. "An Analysis of the Effect of Fiscal Expenditure on the Income Distribution of Chilean Households," Working Papers 226, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:226
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/226.pdf
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    Keywords

    Fiscal Expenditure; Fiscal Redistribution; Income Distribution; Social Accounting Matrix; Chile; Multiplier Model;
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