IDEAS home Printed from https://ideas.repec.org/p/tul/ceqwps/82.html

Taxes, Transfers and Income Distribution in Chile: Incorporating Undistributed Profits

Author

Listed:
  • Bernardo Candia

    (Universidad de Chile)

  • Eduardo Engel

    (Universidad de Chile)

Abstract

This paper seeks to measure the distributive impact of fiscal interventions in Chile, applying the “Commitment to Equity” (CEQ) methodology, a standardized fiscal incidence analysis. As a methodological innovation, we incorporated income accrued and not received by Chilean taxpayers through their companies and corporations into the distribution of pre-fiscal income. We find that the difference between the distribution of accrued and received income turns out to be important, around 6 Gini percentage points for each main concept of income. In addition, when moving from the distribution of market income to the distribution of final income (after taxes and transfers) the distribution of income improves by 7 Gini percentage points. To assign the improvement in the distribution of income between the different fiscal interventions, we apply the Shapley value and it is observed that half of the improvement in the distribution of income is due to transfers in education, while direct taxes only explain 20% of the reduction of the Gini coefficient. Finally, based on the simulation of the impact of the 2014 tax reform carried out by the World Bank, we estimate that the reform would produce an additional reduction of 2.4 Gini percentage points when going from market income to final income.

Suggested Citation

  • 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.
    • Handle: RePEc:tul:ceqwps:82
    as

    Download full text from publisher

    File URL: http://repec.tulane.edu/RePEc/ceq/ceq82.pdf
    File Function: First version, 2018
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ali Enami & Nora Lustig & Rodrigo Aranda, 2016. "Analytic Foundations: Measuring the Redistributive Impact of Taxes and Transfers," Commitment to Equity (CEQ) Working Paper Series 25, Tulane University, Department of Economics.
    2. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
    3. Mercedes Sastre & Alain Trannoy, 2002. "Shapley inequality decomposition by factor components: Some methodological issues," Journal of Economics, Springer, vol. 9(1), pages 51-89, December.
    4. Anthony Shorrocks, 2013. "Decomposition procedures for distributional analysis: a unified framework based on the Shapley value," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 11(1), pages 99-126, March.
    5. Luis López-Calva & Eduardo Ortiz-Juarez, 2014. "A vulnerability approach to the definition of the middle class," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(1), pages 23-47, March.
    6. Engel, Eduardo M. R. A. & Galetovic, Alexander & Raddatz, Claudio E., 1999. "Taxes and income distribution in Chile: some unpleasant redistributive arithmetic," Journal of Development Economics, Elsevier, vol. 59(1), pages 155-192, June.
    7. Agostini, Claudio & Flores, Bárbara & Martínez A., Claudia, 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.
    8. repec:idq:ictduk:10247 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Osvaldo Larrañaga & Benjamín Echecopar & Nicolás Grau, 2022. "Una nueva estimación de la desigualdad de ingresos en Chile," Estudios Públicos, Centro de Estudios Públicos, vol. 0(167), pages 45-76.
    3. Jellema,Jon Robbert & Grown,Caren & Fuchs Tarlovsky,Alan & Wai-Poi,Matthew Grant & Tiwari,Sailesh & Sosa,Mariano Ernesto, 2024. "Gender and Fiscal Policy — A Methodological Proposal and Its Application to Jordan and Armenia," Policy Research Working Paper Series 10733, The World Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lustig, Nora & Martinez Pabon, Valentina & Pessino, Carola, 2023. "Fiscal policy, income redistribution, and poverty reduction in Latin America," LSE Research Online Documents on Economics 120683, London School of Economics and Political Science, LSE Library.
    2. Abdelkhalek, T. & Boccanfuso, D., 2026. "Is the Moroccan fiscal system progressive ? A Shapley decomposition," World Development Perspectives, Elsevier, vol. 42(C).
    3. Selçuk Gemicioğlu & Burça Kızılırmak & Uğur Akkoç, 2024. "Relative contributions of indirect taxes and inflation on inequality: What does the Turkish data reveal?," Review of Development Economics, Wiley Blackwell, vol. 28(1), pages 286-309, February.
    4. Nora Lustig, 2016. "El Impacto del Sistema Tributario y el Gasto Social en la Distribucion del Ingreso y la Pobreza en America Latina: Argentina, Bolivia, Brasil, Chile, Colombia, Costa Rica Ecuador, El Salvador, Guatemala, Honduras, Mexico, Peru y Uruguay," Commitment to Equity (CEQ) Working Paper Series 37, Tulane University, Department of Economics.
    5. Robles, Adrian & Robles, Marcos, 2016. "Changes in Welfare with a Heterogeneous Workforce: The Case of Peru," IDB Publications (Working Papers) 7507, Inter-American Development Bank.
    6. Nora Lustig, 2016. "El Impacto del Sistema Tributario y el Gasto Social en la Distribución del Ingreso y la Pobreza en América Latina: Argentina, Bolivia, Brasil, Chile, Colombia, Costa Rica Ecuador, El Salvador, Guatema," Commitment to Equity (CEQ) Working Paper Series 1337, Tulane University, Department of Economics.
    7. repec:ocp:rpaeco:pb_42-23 is not listed on IDEAS
    8. Carlos Gradín, 2018. "Quantifying the contribution of a subpopulation to inequality: An application to Mozambique," WIDER Working Paper Series 60, World Institute for Development Economic Research (UNU-WIDER).
    9. Lustig Nora, 2016. "Inequality and Fiscal Redistribution in Middle Income Countries: Brazil, Chile, Colombia, Indonesia, Mexico, Peru and South Africa," Journal of Globalization and Development, De Gruyter, vol. 7(1), pages 17-60, June.
    10. Ali Enami & Nora Lustig & Rodrigo Aranda, 2016. "Analytic Foundations: Measuring the Redistributive Impact of Taxes and Transfers," Commitment to Equity (CEQ) Working Paper Series 25, Tulane University, Department of Economics.
    11. Carlos Gradín, 2021. "Inequality by Population Groups and Income Sources: Accounting for Inequality Changes in Spain During the Recession," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(2), pages 481-508, June.
    12. Ali Enami & Nora Lustig & Rodrigo Aranda, 2016. "Analytic Foundations: Measuring the Redistributive Impact of Taxes and Transfers," Commitment to Equity (CEQ) Working Paper Series 1325, Tulane University, Department of Economics.
    13. Lustig, Nora, 2017. "El impacto del sistema tributario y el gasto social en la distribución del ingreso y la pobreza en América Latina. Una aplicación del marco metodológico del proyecto Compromiso con la Equidad (CEQ)," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(335), pages .493-568, julio-sep.
    14. Martinez Aguilar,Sandra Natalia & Fuchs Tarlovsky,Alan & Ortiz-Juarez,Eduardo & Del Carmen Hasbun,Giselle Eugenia, 2017. "The impact of fiscal policy on inequality and poverty in Chile," Policy Research Working Paper Series 7939, The World Bank.
    15. Carlos Gradín, 2020. "Quantifying the contribution of a subpopulation to inequality an application to Mozambique," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(3), pages 391-419, September.
    16. repec:ocp:ppaper:pb42-23 is not listed on IDEAS
    17. Luis A. Hierro & Rosario Gómez‐Álvarez & Pedro Atienza, 2014. "A Consistent Decomposition Of The Redistributive, Vertical, And Horizontal Effects Of Health Care Finance By Factor Components," Health Economics, John Wiley & Sons, Ltd., vol. 23(1), pages 117-121, January.
    18. Nora Lustig, 2017. "Fiscal Policy, Income Redistribution and Poverty Reduction in Low and Middle Income Countries," Working Papers 1701, Tulane University, Department of Economics, revised Aug 2017.
    19. David Pérez-Mesa & à ngel S. Marrero, 2024. "Adult health and inequality of opportunity in Spain," Working Papers 671, ECINEQ, Society for the Study of Economic Inequality.
    20. Jacques Silber & Sasiwimon Warunsiri Paweenawat & Lusi Liao, 2022. "On the measurement of non-random mating and of its change over time," Review of Economics of the Household, Springer, vol. 20(1), pages 161-198, March.
    21. Pérez-Mesa, David & Marrero, Gustavo A. & Darias-Curvo, Sara, 2021. "Child health inequality in Sub-Saharan Africa," MPRA Paper 108801, University Library of Munich, Germany.
    22. Nora Lustig, 2016. "Fiscal Policy, Inequality and the Poor in the Developing World," Working Papers 1612, Tulane University, Department of Economics, revised Aug 2017.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tul:ceqwps:82. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nora Lustig (email available below). General contact details of provider: https://edirc.repec.org/data/detulus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.