In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.


In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.

Chile’s Experience with Inclusive Growth1

Socioeconomic indicators in Chile have improved significantly over the last two decades. Income per capita has risen and poverty has declined. Chile’s income distribution has also become somewhat more even, but it remains highly skewed compared to the region and OECD countries. This chapter reviews Chile’s experience with inclusive growth over the last two decades and identifies remaining challenges and policy options.

A. Introduction

1. Inclusive growth is not only important for economic and social stability but also for the sustainability of strong growth. High levels of poverty and inequality can affect long-term growth by making it harder for the poor to invest in human capital, increasing the risk of social conflict and crises that undermine economic performance, and shortening the duration of high growth episodes.2 Consequently, making growth inclusive has become an essential part of successful growth strategies, and many governments, including in Chile, have set themselves the goal of growth with social equity.

2. This paper reviews Chile’s experience with inclusive growth over the last two decades, and identifies challenges and policy options to promote greater equality. Specifically, the paper reviews Chile’s progress in improving the following: (i) poverty and income inequality; (ii) labor market equity, including in employment and wages; and (iii) equality of opportunity, including in access to quality education and health care services, and compares Chile’s performance with countries in the region3 and the OECD. The paper ends with a discussion of social policy options.

B. Inclusive growth: trends

Poverty and Income Inequality

3. Chile has made significant progress in reducing poverty over the last two decades on the back of strong economic growth. During that period, Chile’s GDP per capita in purchasing power terms doubled and it is now the highest in Latin America. Poverty has also fallen: the share of the population living below the national poverty line4 has fallen from 39 percent in 1990 to 14 percent in 2011, and extreme poverty from 13 percent to below 3 percent (Table 1).5 Most of the reduction in poverty has resulted from Chile’s strong economic growth. A study by Libertad and Desarrollo (2010) found that growth accounted for 75 percent of the poverty reduction in the last two decades. Nonetheless, while Chile’s poverty rate is one of the lowest in Latin America, it is still one of the highest within the OECD (Figure 1).

Figure 1.
Figure 1.

Chile: Income Per Capita and Poverty

Citation: IMF Staff Country Reports 2014, 219; 10.5089/9781498328357.002.A002

Source: OECD Income Distribution Database.
Table 1.

Chile: Poverty Headcount Ratios 1990-2011

(Percentage of Population Below Poverty Lines)

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Source: Socio-Economic Database for Latin America and the Caribbean (CEDLAS).

In November 2011, extreme poverty line was $36 and moderate poverty line was $72 per month per person in Chile.

4. The decline in Chile’s high income inequality has been slower and more recent. While most of the poverty reduction occurred in the 1990s and mainly due to strong growth, most of the improvement in income distribution occurred in the 2000s with the help of social policy (See Section C). After being relatively flat in the 1990s, Chile’s Gini index declined from 55 percent in 2000 to 51 percent in 2011 (Table 2). However, it remains high even by Latin American standards—the region with the world’s highest income inequality—and it is the highest within the OECD (20 percentage points above the OECD average) (Figure 2). Other metrics also show a gradual improvement, but inequality remains significant. For example, the top decile (quintile) in the income distribution earns 25 (13) times more than the bottom decile (quintile).

Figure 2.
Figure 2.

Chile: Income Inequality

Citation: IMF Staff Country Reports 2014, 219; 10.5089/9781498328357.002.A002

Source: OECD Income Distribution Database.
Table 2.

Chile: Income Inequality 1990-2011

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Source: Socio-Economic Database for Latin America and the Caribbean (CEDLAS).

Distribution of Household Monetary Income Before and After Monetary Transfers

(In percent)

Citation: IMF Staff Country Reports 2014, 219; 10.5089/9781498328357.002.A002

Source: National Socioeconomic Characterization (CASEN) Survey 2011.

5. The reduction in poverty has not led to a commensurate reduction in inequality as the largest income disparities prevail at the top of the income distribution. According to the 2011 National Socioeconomic Characterization Survey (CASEN), the average autonomous income for households in the 10th (top) decile was 2.5 times as high as for the ones in the 9th decile, whereas for the 2nd through the 9th income deciles, the ratios between two sequential deciles were on average 1.3. Thus, income distribution was relatively equitable except for the top and bottom deciles. For the latter poorest, however, monetary transfers partly improved relative incomes and helped reduce poverty. Nevertheless, monetary transfers, historically accounting for 1–2 percent of household monetary income, have not significantly reduced inequality (Table 3).

Table 3.

Chile: Monetary Transfers and Income Inequality 1990-2011

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Source: National Socieconomic Characterization (CASEN) Surveys.

Household monetary income consists of autonomous income (labor and capital income together with contributory and private transfers) and monetary subsidies.

6. High income inequality is reinforced by low intergenerational social mobility. Intergenerational earnings elasticity, which measures the extent to which the income of a person is determined by his parents’ income, is high in Chile by international standards, implying a low degree of intergenerational social mobility (Figure 3). Recent estimates of intergenerational earnings elasticity are in the range of 0.5–0.75 for Chile (Corak 2006, Contreras 2007, Nuñez and Miranda 2010), one of the highest within the OECD, stemming largely from a high inequality of opportunity especially in access to quality education (See Section C).

Figure 3.
Figure 3.

Chile: Social Mobility and Labor Market Equity

Citation: IMF Staff Country Reports 2014, 219; 10.5089/9781498328357.002.A002

Wages and employment

7. As wages constitute the bulk of household monetary income, wage inequality is an important determinant of income inequality. In the 2011 CASEN Survey, labor income accounted for about 85 percent of household monetary income, out of which 60 percent was wages and salaries, and the rest was non-salaried income (of entrepreneurs and self-employed).6 The Gini indices for labor incomes show that non-salaried labor income is associated with much higher inequality than salaried income (Table 4). However, both salaried and non-salaried income distributions have improved over the last decade, feeding into the lower inequality observed in the household monetary incomes.

Table 4.

Chile: Inequality in Labor Income Distribution and Skill Premium in Labor Earnings 1990-2011

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Sources: National Socieconomic Characterization (CASEN) Surveys and Socio-Economic Database for Latin America and the Caribbean (CEDLAS).

Ratio of wages for those with a tertiary education (high skilled), secondary education (medium skilled) and primary education (low skilled).

8. Wage inequality in Chile is closely linked to the skill premium. In the 1990s, for males aged 25–55, wages for those with a tertiary education were three times higher than for those with secondary education, partly reflecting increased demand for high-skilled workers during this period (Table 4). In the last decade, however, an increase in the supply of skilled workers helped reduce skill premiums, wage gaps, and income inequality (Larrañaga and Herrera, 2008). Nevertheless, Chile’s skill premium remains among the highest in the region and in the OECD, due in part to differences in the quality of secondary education that affect enrollment in higher education (Figure 3).


Female Labor Force Participation Rate (Ages 15-64)

(In percent)

Citation: IMF Staff Country Reports 2014, 219; 10.5089/9781498328357.002.A002

Sources: World Bank, World Development Indicators, and OECD.

9. Chile has seen an increase in female labor force participation and a decline in the gender-wage gap. Female labor force participation rose from 35 percent in 1990 to 55 percent in 2011, but this is still 7 percentage points below OECD and Latin America averages (Table 5). This increase was mainly driven by higher participation among adult females. Coupled with a fall in the participation of young males, this increase resulted in an increase in the share of women in the labor force from 30 percent in 1990 to 40 percent in 2011 and in the share of women in employment from 32 to 40 percent. The gender wage gap, defined as the ratio of the male-wages to female-wages, declined from 1.4 to 1.2. While the share of women in employment is 5 percentage points below the OECD average, Chile’s gender-wage gap is close to the Latin America and OECD averages (Figure 2).

Table 5.

Chile: Female Labor Force Participation, Employment, and Gender Wage Gap 1990-2011

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Sources: Socio-Economic Database for Latin America and the Caribbean and World Bank World Development Indicators.

Ratio of wages for males to those for females.

C. Social policy: progress

10. Chile has a large number of social programs and has seen an increase in public social spending. Of the 386 social programs that the Ministry of Social Development identified in 2013, most focused on social protection, education, and health (Table 6).7 Social spending in these areas increased from 12 to 14 percent of GDP over the last two decades, and the increase was particularly large for education and health spending (Table 7). Overall public social spending is fairly high in Chile by regional standards when measured on per capita basis but when measured as a percentage of GDP it falls behind the regional and OECD averages (Figure 4).

Figure 4.
Figure 4.

Chile: Public Social Spending and Tax-Transfer System

Citation: IMF Staff Country Reports 2014, 219; 10.5089/9781498328357.002.A002

Source: OECD.Note: Pre taxes and transfers only for Mexico, Turkey, and Hungary.
Table 6.

Chile: Number of Social Programs in 2013

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Source: Ministry of Social Development (2013).
Table 7.

Chile: Public Social Spending 1990-2011

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Sources: Budget Directory (DIPRES).

Amounts in 2012 Chilean Pesos, normalized to 1990=100.


Tax Incidence by Household Income Decile

(percent of decile’s mean disposable income, mid-2000s)

Citation: IMF Staff Country Reports 2014, 219; 10.5089/9781498328357.002.A002

Source: OECD.

11. The Chilean tax-transfer system is characterized by low level of redistribution. While Chile has a level of tax revenue comparable to countries with similar characteristics (i.e., per capita GDP and demographics), Chile relies more on consumption-based indirect taxation (VAT and excise) than on income taxation, which tends to be more progressive.8 The tax incidence (tax payments as a fraction of disposable income) for the highest income decile in Chile is in fact lower than the one faced by the lowest income decile, and the tax incidence peaks at the third decile and then falls between the third and ninth deciles, both of which indicate progressivity. On the other hand, the amount of public social transfers in Chile, including old-age, survivors, disability, family, labor market, and housing related cash and in kind transfers, has been low compared to the OECD average (10.2 versus 21.8 percent of GDP in 2012). Consequently, the Chilean tax-transfer system has not been effective in reducing poverty and inequality compared to the OECD (Figure 3).

Social assistance and development

12. Over the last decade, Chile has launched several new social assistance and development programs focused on extreme poverty, and social vulnerability and exclusion. Key programs include: Chile Solidario (2002) aimed at overcoming extreme poverty, Chile Crece Contigo (2006) providing maternity and early childhood care and education for poor families, and Pension Basica Solidaria (2008) providing non-contributory pensions to old and disabled without social security. In 2011, the government created the Ministry of Social Development to serve as a coordinating body of all social policies and monitor their performance with the goal of eradicating extreme poverty by 2014 and poverty by 2018. Towards this goal, the government replaced Chile Solidario with a new cash transfer system Ingreso Etico Familiar (2012), aiming to achieve better outcomes in employment and earnings of the poor.

13. Chile Solidario (2002) was the first initiative to fight extreme poverty in Chile. Beneficiaries of Chile Solidario, targeted through a proxy means-testing called the Ficha de Proteccion Social that evaluates the possessions and the income-generating capacity of households, have preferential access to a wide range of transfer programs and social support. The transfers include basic solidarity pensions mentioned above, family allowances to children, pregnant women, and disabled provided by Subsidio Unico Familiar (1981), and a subsidy for drinking water and sewage, together with the transfers directly provided by Chile Solidario. The latter, however, were temporary and small in size, mainly aimed at motivating participation and creating awareness and better use of the social public services with the help of a social worker (Programa Puente), rather than eliminating poverty.

14. Ingreso Etico Familiar (IEF), created in 2012, replaced Chile Solidario aiming to reduce poverty and vulnerability through a wider range and larger amount of transfers and employment support. The transfers under IEF consist of three pillars: dignity, duties, and achievements. The first two target households and individuals living in extreme poverty: Dignity awards are unconditional cash transfers, whereas duties awards are transfers conditional on children’s health check-ups, school enrolment and attendance.9 The third pillar (achievements) targets not only the extremely poor, but also the most vulnerable 30–40 percent of the population. Achievement awards include transfers conditional on secondary school graduation, academic performance of students, and female employment (Bono Al Trabajo de La Mujer). In addition, IEF provides employment support for individuals older than 18, and training sessions developing technical and soft skills for employability to help them enter the labor market.

Social services

15. Access to quality social services, i.e., health care and education, is unevenly distributed between the poor and the rich. Individuals with higher incomes typically rely on more expensive social services provided by the private sector in private facilities with higher quality, while individuals with lower incomes typically rely on public social services, which are more affordable, in some cases free, but generally with lower quality.

16. Access to health care has become almost universal but there are large differences in the quality of health care. The share of the population covered by health insurance increased from 88 percent in 1990 to 97 percent in 2011 (Table 8). In 2011, 84 percent of the population had public insurance with universal benefits, while 14 percent of the population, mostly from the top income quintiles, had private insurance with benefits depending on additional contributions and health risk.10 Beneficiaries of public insurance have access to both public and private health care facilities. The latter, however, provide higher quality health care with shorter wait times but with higher co-payments, limiting the access for the relatively poor. Nevertheless, the special health care plan Plan de Acceso Universal con Garantías Explícitas introduced in 2004 ensures universal access to affordable and quality healthcare from accredited providers (as of 2013) for a number of high priority health conditions, facilitating greater equity.

Table 8.

Chile: Health Insurance Coverage 1990-2011

(Share of people covered by health insurance per income quintile; in percent)

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Source: Ministry of Social Development (2013).

17. Enrollment in education has increased at all levels, but still remains segregated among the poor and the rich. While lower-income students mostly attend free public schools or, in some cases, subsidized private schools for primary and secondary education, higher-income students, mostly from the top quintile, attend paid private schools with higher quality (Table 9), measured by better performance in standardized tests and higher enrollment in tertiary education (Ministry of Social Development, Social Policy Report, 2013). For tertiary education, availability of scholarships and financial aid partly compensate for the existence of tuition fees. However, performance at the entrance exams, which reflects the quality of earlier education, remains significant in determining the socioeconomic differences in enrollment rates.

Table 9.

Chile: Enrollment in (Public) Education 1990-2011

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Source: Socio-Economic Database for Latin America and the Caribbean (CEDLAS).

Share of children/youth in primary/secondary/tertiary school age attending primary/secondary/tertiary education.


PISA 2012 Results

(In absolute value (lhs), in percentage (rhs))

Citation: IMF Staff Country Reports 2014, 219; 10.5089/9781498328357.002.A002

Source: OECD.1/ Percentage of variation in student performance explained by socioeconomic background.

18. Despite recent improvements, the quality of education is still a concern in Chile. In OECD’s 2012 Program for International Student Assessment (PISA) survey, which assesses 15-year-olds in mathematics, science, and reading, Chilean students obtained the highest scores among participating Latin American countries in all three areas, and raised their scores substantially since the 2000 survey. However, Chilean students still ranked far below the OECD average. Moreover, together with Peru and Uruguay, Chile ranked among the countries with lowest equity in education, with a large part of variation in performance explained by socio-economic factors, including parents’ educational and occupational attainment, and living standards. Chile’s high intergenerational earnings elasticity and low intergenerational mobility are largely explained by educational inequity (Contreras, 2007).

D. Remaining challenges and policy options

19. Sustaining strong growth is paramount for continued and lasting increases in welfare and reductions in poverty. As studies show, most of the poverty reduction has been due to economic growth in Chile, especially in the 90s, and economic slowdown was the main reason for the temporary rise in poverty in 2009. Macroeconomic stability and avoiding crises are key for continued reductions in poverty and inequality, which in turn reinforce sustainability of strong growth, creating a virtuous cycle of growth and equity.

20. Further efforts on the jobs, education, and redistribution fronts could also help improve income distribution and social mobility (IMF, 2014). Focus could be on:

  • Facilitating labor force participation and employment, especially among women. The extension of early-childhood education and childcare services through Chile Crece Contigo, the increase in the length of maternity leave to 24 weeks in 2011, and the introduction of employment bonuses for low income women as part of the IEF are welcome steps. In line with OECD recommendations (OECD, 2013), other measures that could be considered are i) reassessing the requirement for childcare provision by companies with more than 19 female employees to eliminate unintended gender discrimination in hiring, and instead promoting universal access for quality childcare, and ii) improving job training opportunities, especially for young women.

  • Strengthening unemployment assistance, especially for the young and low-skilled. IEF already provides employment support and training services, the impact of which could be evaluated. However, youth employment subsidies (Subsidio al Empleo Joven), introduced in 2009, are not used by many eligible young people (according to Ministry of Labor). Increasing awareness and take-up of existing benefits would help improve their impact.

  • Promoting equal access to quality education, especially at younger ages and among women. Raising the quality and equity in education would improve income-generating human capabilities and reduce inequality. Chile’s public spending on education is low by international standards 11 (Table 10) and has limited scope for efficiency gains.12 Nevertheless, the authorities’ planned education reform is an opportunity to reassess the effectiveness of the existing social programs in education and channel resources to the areas that have the highest social return. Such areas, e.g., early childhood education, are also the areas in which Chile has to make significant strides to close the gap (both in enrollment and quality) with its OECD peers (OECD Education Policy Outlook, 2013).

  • Streamlining the tax-transfer policy to achieve greater redistribution. According to a study by Fairfield and Jorratt (2014), in Chile, the top percentile is estimated to have a very large income share (15–33 percent depending on assumptions), while paying relatively low effective tax rates (between 9–17 percent depending on methodology) by international standards. The authors argue that there is substantial room to increase the taxes on top income earners to curtail their income growth, as well as raising more revenue to finance social spending, both of which could contribute to reducing inequality. The current government has put forward a tax reform proposal aiming to increase progressivity.

Table 10.

Chile: Education Spending as a Share of GDP, 2010 1/

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Source: Education at a Glance, OECD 2013.

2011 for Chile. Spending on educational institutions only. Total public spending on education, including subsidies (scholarships/grants/loans), were 4.1, 5.3, and 5.8 percent of GDP in Chile, Mexico and average OECD, respectively.

E. Concluding remarks

21. Further analysis on wealth distribution could provide a more comprehensive understanding of the level and evolution of inequality. Keeping in mind the caveat of data availability,13 future research could focus on the differences in savings of the individuals as well as bequests and inheritances, especially for the top income brackets, to document better the distribution of wealth in Chile, which is presumably more skewed than the distribution of disposable income measured using household surveys.

Definitions of Key Concepts

National Poverty Lines: Official poverty thresholds measuring minimum levels of income necessary to afford basic nutritional needs (extreme poverty) together with necessities such as clothing, healthcare and shelter (moderate poverty) based on a basic basket of goods.

Regional Poverty Lines: Poverty lines approximately representing median value of the extreme and moderate poverty lines officially set by governments in the Latin America and Caribbean region, which are $2.5 and $4 a day in purchasing power terms, respectively.

Relative Poverty Line: Poverty line corresponding to 50 percent of the median income in the population, a measure used in more advanced economies including the OECD.

Household Monetary Income: Sum of autonomous income and monetary subsidies. Equivalently, sum of labor and non-labor income.

Autonomous Income: Sum of labor income consisting of wages, salaries, allowances and bonuses, and non-labor income (including capital income) consisting of rents, interest and dividend earnings, pension, healthcare benefits, and other private transfers.

Monetary Subsidies: Cash transfers by the public sector through social programs.

Labor income: Income from work of (i) employees earning wages or salaries (salaried income), and (ii) employers and self-employed including home production (non-salaried income).

Non-labor Income: Sum of non-labor autonomous income and monetary subsidies.

Public Social Spending: Sum of government spending on social protection and social services, i.e., health care and education.

Social Protection: Covers social assistance transfers (conditional and unconditional cash transfers), social security transfers (contributory and noncontributory public pensions), and social development programs targeted at improving the living conditions of vulnerable groups.

Social Development Programs: Aim to increase the welfare of vulnerable groups (e.g. elderly, women and children, youth and unemployed, homeless, disabled, indigenous) through, for example, capacity building (e.g. job training programs) to overcome the root causes of poverty.


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Prepared by Elif Ture (WHD).


See, for example, Banerjee (2004) for the underinvestment channel, Rodrik (1999) for the social conflict and Kumhof and Rancière (2010) for the crisis channels, and Berg, Ostry and Tsangarides (2014) for the growth duration channel.


Throughout the paper, regional comparisons are made among LA6 countries, which include Brazil, Chile, Colombia, Mexico, Peru, and Uruguay.


See Box 1 for definitions of key concepts.


Note that the (extreme) poverty rate increased in Chile between 2006 and 2009, from 13.7 (3.2) percent to 15.1 (3.9) percent for the first time since 1990, mostly due to the economic slowdown.


While 85 percent of household monetary income was labor income, around 13 percent of household monetary income was non-labor autonomous income, including rents, interest and dividends, pension, healthcare, and other private transfers. The remaining 2 percent of household monetary income was monetary subsidies. Total non-labor income accounted for less than 5 percentage points of the Gini index on household monetary income, which was 53 percent in 2011 (Friedman and Hofman, 2013). Note that household surveys are unable to measure capital income accurately, especially for higher income groups, due to sampling and under-reporting issues.


Other programs include, for example, housing, environment, and culture. Social protection programs include social assistance and social security transfers together with social development programs targeted at improving the living conditions of vulnerable groups.


See for more details Chile’s Tax System and Reform, by D. Rodriguez-Delgado, Selected Issues Paper.


Financial assistance for schooling covers over 90 percent of primary education and 85 percent of secondary education.


All Chilean workers and pensioners are obligated to pay 7 percent of income for health insurance, which could be public or private. For the latter, higher contributions can be paid to increase benefits.


Note that total education spending (public and private) is not low in Chile compared to the OECD (Table 10), due mostly to high private spending on tertiary education.


See Grigoli (2014) on the efficiency of public spending in Chile from a cross country perspective.


Such analysis could require using confidential tax-return data, as conducted by Fairfield and Jorratt (2014).

Chile: Selected Issues Paper
Author: International Monetary Fund. Western Hemisphere Dept.