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Taxes, Transfers and Income Distribution in Chile: Incorporating Undistributed Profits

Bernardo Candia and Eduardo Engel ()
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Bernardo Candia: Universidad de Chile

No 82, Commitment to Equity (CEQ) Working Paper Series from Tulane University, Department of Economics

Abstract: This paper seeks to measure the distributive impact of fiscal interventions in Chile, applying the “Commitment to Equity” (CEQ) methodology, a standardized fiscal incidence analysis. As a methodological innovation, we incorporated income accrued and not received by Chilean taxpayers through their companies and corporations into the distribution of pre-fiscal income. We find that the difference between the distribution of accrued and received income turns out to be important, around 6 Gini percentage points for each main concept of income. In addition, when moving from the distribution of market income to the distribution of final income (after taxes and transfers) the distribution of income improves by 7 Gini percentage points. To assign the improvement in the distribution of income between the different fiscal interventions, we apply the Shapley value and it is observed that half of the improvement in the distribution of income is due to transfers in education, while direct taxes only explain 20% of the reduction of the Gini coefficient. Finally, based on the simulation of the impact of the 2014 tax reform carried out by the World Bank, we estimate that the reform would produce an additional reduction of 2.4 Gini percentage points when going from market income to final income.

Keywords: Fiscal incidence; inequality; poverty; undistributed profits; taxes; transfers; Chile (search for similar items in EconPapers)
JEL-codes: D31 H22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth, nep-pbe and nep-pub
Date: 2018-09
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Published in Commitment to Equity, September 2018, pages 1-41

Downloads: (external link) First version, 2018 (application/pdf)

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