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The Impact of Fiscal Policy on Inequality and Poverty in Chile

Sandra Martinez-Aguilar (), Alan Fuchs (), Eduardo Ortiz-Juarez () and Giselle Del Carmen ()
Additional contact information
Sandra Martinez-Aguilar: Commitment to Equity Institute (CEQI)
Alan Fuchs: World Bank
Giselle Del Carmen: World Bank

No 46, Commitment to Equity (CEQ) Working Paper Series from Tulane University, Department of Economics

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 gainer

Keywords: Fiscal Policy and Inequality; Income Inequality; Poverty; Social Assistance; Taxation (search for similar items in EconPapers)
JEL-codes: D31 I32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-lam
Date: 2017-01
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