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The relationship between income inequality and inequality of opportunities in a high-inequality country: the case of Chile

Javier Nunez and Andrea Tartakowsky

Applied Economics Letters, 2011, vol. 18, issue 4, 359-369

Abstract: Based on Bourguignon et al. (2005, 2007), we explore the extent to which income inequality in Chile is associated with inequality of 'opportunities', proxied by inequality in observed socioeconomic circumstances of origin. We found that equalizing a diverse set of observed circumstances across individuals reduces the Gini and the Theil coefficients by about 15 and 25%, respectively. Almost half of the effect of observed circumstances on incomes is transmitted directly to earnings, whereas the rest is indirectly transmitted through the accumulation of schooling. Further results suggest that the influence of unobserved circumstances on income inequality may be limited; hence aspects such as preferences, choices, transitory income shocks and income measurement errors may be important factors behind observed income inequality.

Date: 2011
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DOI: 10.1080/13504851003636172

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