Income Distribution In Chile, 1987-2006: Analysis And Policy Considerations

The Chilean Economy has experienced substantial changes in last quarter century: The GDP per capita almost duplicated, inflation dropped significantly and real wages improved substantially. The economy opened to international trade and markets were liberalized and diversified. However, income concentration, as measured by the Gini coefficient, has remained extremely high at about 55%. Based on the large and nation-wide representative CASEN survey, this paper studies trends in income distribution in Chile between 1987 and 2006 at both the household and the individual level. The paper analyses ten stylized facts such as the high and persistent income concentration, the substantial impact of the wealthiest percentiles on the income distribution and the high variability of income distribution across regions. The study finds that inequality may have declined from 2003 to 2006. Finally, the paper presents a statistical model accounting for inequality at the regional level. The model suggests that the association between economic activity at the regional level and inequality follows an inverted-U shape consistent with the Kuznets curve. It also suggests that growing educational attainment contributes to reducing inequality but other demographic factors (urbanization, reduction of household size) may have the opposite effect, resulting in a stable Gini coefficient over time.