IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Developmentalism, socialism, and free market reform : three decades of income distribution in Chile

Listed author(s):
  • Marcel, Mario
  • Solimano, Andres

After relatively stable income distribution in the 1960s, and a redistribution toward low income groups under Allende, income shares declined for the 40 percent of the population (low and lower middle income groups) under Pinochet. The top 20 percent benefited most from the income shift away from low income groups. Under Aylwin, the income share of the bottom 40 percent returned to previous levels, but the share of the top 20 percent remained above its pre-1973 historical average. The authors show that in the first years of market oriented reform income for the poor deteriorated, chiefly because of persistent unemployment and a squeeze on the real minimum wage and other wage categories. The share of the middle class (the third and fourth quintiles) in national income declined by an average 3 percentage points during 1974-89 - because of cutbacks in public sector employment and steadily decling public sector wages. Recession with high unemployment especially hurts the poor, and growth does not equalize conditions until it strengthens labor markets. Only when Chile's economy approached full capacity, when wages rose and unemployment dropped to a historic low in the early 1990s, did income distribution for the poor improve. If growth continues and investment grows even faster, as in the past two years, the labor market will remain tighter than in any period in the past 30 years and distribution may improve significantly. Is a liberalized economy compatible with social equity? The authors show that initially income distribution deteriorated under reform, chiefly because of macroeconomic crises and subsequent higher unemployment and depressed real wages. However, it is not clear that trade liberalization and deregulation are socially regressive, though the market outcomes that dominate in a liberalized economy may generate a failure in the labor market that social policy should correct. There is more potential for improving the quality of social services today than in the past, but targeting of social services should be designed to prevent the"poverty trap". Targeting and social policies should be designed to encourage personal efforts to escape poverty and to avoid alienating middle income groups.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1188.

in new window

Date of creation: 30 Sep 1993
Handle: RePEc:wbk:wbrwps:1188
Contact details of provider: Postal:
1818 H Street, N.W., Washington, DC 20433

Phone: (202) 477-1234
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

in new window

  1. Bourguignon, Francois & De Melo, Jaime & Suwa, Akiko, 1991. "Modeling the effects of adjustment programs on income distribution," World Development, Elsevier, vol. 19(11), pages 1527-1544, November.
  2. Persson, Torsten & Tabellini, Guido, 1991. "Is Inequality Harmful for Growth? Theory and Evidence," CEPR Discussion Papers 581, C.E.P.R. Discussion Papers.
  3. Lindert, Peter H. & Williamson, Jeffrey G., 1985. "Growth, equality, and history," Explorations in Economic History, Elsevier, vol. 22(4), pages 341-377, October.
  4. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  5. Blinder, Alan S & Esaki, Howard Y, 1978. "Macroeconomic Activity and Income Distribution in the Postwar United States," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 604-609, November.
  6. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
  7. Felipe Larraín & Rodrigo Vergara, 1992. "Distribución del Ingreso, Inversión y Crecimiento," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 29(87), pages 207-228.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1188. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.