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The impact of fiscal policy on inequality and poverty in Chile

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  • Martinez Aguilar,Sandra Natalia
  • Fuchs Tarlovsky,Alan
  • Ortiz-Juarez,Eduardo
  • Del Carmen Hasbun,Giselle Eugenia

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 gainers, and the magnitude of monetary fiscal gains is significantly higher than that of fiscal impoverishment.

Suggested Citation

  • 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.
    • Handle: RePEc:wbk:wbrwps:7939
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    Cited by:

    1. Ali Enami & Ugo Gentilini & Patricio Larroulet & Nora Lustig & Emma Monsalve & Siyu Quan & Jamele Rigolini, 2023. "Universal Basic Income Programs: How Much Would Taxes Need to Rise? Evidence for Brazil, Chile, India, Russia, and South Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 59(9), pages 1443-1463, September.
    2. Yaru, Mohammed Aminu & Adisa-Ohiaka, Ubaydah, 2022. "Indirect Taxation and Poverty in Sub-Saharan Africa: An Empirical Evidence from Panel Data Analysis," African Journal of Economic Review, African Journal of Economic Review, vol. 10(5), December.
    3. 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.
    4. Pessino, Carola & Izquierdo, Alejandro & Vuletin, Guillermo, 2018. "Better Spending for Better Lives: How Latin America and the Caribbean Can Do More with Less," IDB Publications (Books), Inter-American Development Bank, number 9152, November.

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    More about this item

    Keywords

    Public Finance Decentralization and Poverty Reduction; Macro-Fiscal Policy; Inequality; Public Sector Economics; Services&Transfers to Poor; Disability; Economic Adjustment and Lending; Economic Assistance; Access of Poor to Social Services; Taxation&Subsidies;
    All these keywords.

    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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