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The Impact of Fiscal Policy on Inequality and Poverty in Chile

Author

Listed:
  • Sandra Martinez-Aguilar

    () (Commitment to Equity Institute (CEQI))

  • Alan Fuchs

    () (World Bank)

  • Eduardo Ortiz-Juarez

    () (Doctoral Student in the Department of International Development at King’s College London, and Research Associate at the CEQ Institute (CEQI))

  • Giselle Del Carmen

    () (World Bank)

Abstract

This paper applies a comprehensive tax-benefit incidence analysis to estimate the distributional effects of fiscal policy in Chile in 2013. Four results are indicative of an overall positive net effect of fiscal interventions on poverty and inequality. First, subsidies exert a positive, yet modest effect on poverty and inequality, whereas direct transfers are progressive, equalizing, and reduce the poverty headcount by 4 to 5 percentage points, depending on the poverty line used. Second, although social contributions are unequalizing and poverty-increasing, direct taxes on personal income are equalizing and poverty neutral, whereas indirect taxes are poverty-increasing but exert a counterintuitive, yet feasible equalizing effect known as Lambert’s conundrum. Third, social spending on tertiary education is slightly equalizing but it is not pro-poor, contrary to the effects of social spending on basic and secondary education and health, which are not only equalizing but also pro-poor. Finally, the net effect of Chile’s tax/transfer system leaves fewer individuals impoverished relative to the number of fiscal gainer

Suggested Citation

  • Sandra Martinez-Aguilar & Alan Fuchs & Eduardo Ortiz-Juarez & Giselle Del Carmen, 2017. "The Impact of Fiscal Policy on Inequality and Poverty in Chile," Commitment to Equity (CEQ) Working Paper Series 46, Tulane University, Department of Economics.
  • Handle: RePEc:tul:ceqwps:46
    as

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    File URL: http://repec.tulane.edu/RePEc/ceq/ceq46.pdf
    File Function: Revised version, 2017
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    References listed on IDEAS

    as
    1. Marisa Bucheli & Nora Lustig & Máximo Rossi & Florencia Amábile, 2012. "Social Spending, Taxes and Income Redistribution in Uruguay," Documentos de Trabajo (working papers) 1212, Department of Economics - dECON.
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    3. Barbara Castelletti, 2013. "How Redistributive is Fiscal Policy in Latin America?: The Case of Chile and Mexico," OECD Development Centre Working Papers 318, OECD Publishing.
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    Cited by:

    1. Nora Lustig, 2017. "Fiscal Policy, Income Redistribution and Poverty Reduction in Low and Middle Income Countries," Commitment to Equity (CEQ) Working Paper Series 54, Tulane University, Department of Economics.

    More about this item

    Keywords

    Fiscal Policy and Inequality; Income Inequality; Poverty; Social Assistance; Taxation;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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