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---

### I. Introduction
- Social unrest beginning October 18, 2019 in Chile was unprecedented in magnitude since 1990 and widely unexpected by analysts and authorities.
- Objective: place Chile’s social developments in historical and international perspective to understand underlying discontent and identify social areas with progress and those needing further improvement.
- Organizing framework: six manifestations of inequality:
  - (i) income inequality;
  - (ii) perceived inequality;
  - (iii) inequality of access;
  - (iv) inequality of opportunity;
  - (v) inequality of redistribution;
  - (vi) cross-regional inequality.
- Companion paper (Hadzi-Vaskov, Pienknagura, and Ricci, 2021) analyzes macroeconomic effects of social unrest; this Annex focuses on descriptive and comparative social analysis.

### II. Data and criteria for comparisons
- Data sources include indicators from more than a dozen sources (see Data Sources section).
- Four comparative panel-chart criteria:
  - Overtime and relative to other groups: Chile vs averages for OECD, LA5, and EM.
  - Cross section: average indicator values over 2015–2018 across countries.
  - Change: change in indicator for 2000–2018 for Chile versus other countries.
  - Similar development path: countries with similar initial (2000) and final (2018) Real PPP GDP per capita within –/+5000 Real PPP GDP per capita (identifies 15 comparator countries).
- LA5 defined as: Argentina, Brazil, Colombia, Mexico, and Peru.
- Vulnerable population definition used: population living off US$5.5-13 per day (2011 PPP).

### III. Chile’s macroeconomic performance (stylized facts)
- Average annual GDP growth rate:
  - Chile, 1990–2018: 4.7 percent.
  - LAC region, 1990–2018: 2.8 percent.
- Chile recorded very strong macroeconomic policy frameworks and institutional quality compared to EMEs.
- Macroeconomic performance coincided with significant reductions in poverty and improved living conditions.

### IV. Poverty and vulnerability
- Poverty trends:
  - Multiple poverty lines (World Bank and national) show significant decline in Chile’s poverty rate over three decades.
  - Extreme poverty measured at US$1.5 (2011 PPP) has been virtually eliminated.
  - Over roughly two decades (2000–2018), Chile reduced the poverty rate by about 25 percentage points.
  - Chile’s average poverty rate over 2015–2018 places it among the 15 economies with the lowest poverty rate in the sample.
  - Relative to countries with similar development paths, Chile moved from one of the highest poverty rates in 2000 to one of the lowest in the most recent period.
- Vulnerable population:
  - In 2005 Chile had a larger share of vulnerable population than the LAC region, but achieved a significant decline over the next decade.
  - By 2015–2018, Chile reached one of the lowest shares of vulnerable population among LAC economies in the sample.

### V. Dimensions of inequality — key findings

- A. Income inequality
  - Multiple Gini measures (OECD, SWIID, World Bank; market income vs. disposable income) point to a significant reduction in income inequality in Chile over the past two decades.
  - Despite declines, Chile’s income inequality remains among the highest globally:
    - Chile’s Gini index declined over time but remains one of the highest on the global scale and consistently at the top among countries with similar development path.
  - Income shares:
    - Top 10 percent: income share of the top decile declined over three decades but remains one of the highest among comparators and consistently at the top among similarly developed countries.
    - Bottom 10 percent: income share for the bottom decile improved over the last two decades but remains one of the lowest in international comparisons; among countries with similar development path, Chile’s bottom decile income share was among the lowest in the 2000s and has deteriorated in relative terms since then.
  - Inequality frontier observation:
    - No country with Chile’s level of development (income per capita) or higher exhibits a similar or higher Gini index; Chile is located on the “inequality frontier” for its development level.

- B. Perceived inequality
  - Chile shows the largest gap between perceived inequality (the highest in the sample) and actual inequality among Latin American countries.
  - Over 1997–2015, Chile is among countries where perceived inequality increased even as actual inequality (Gini) declined — an anomalous top-left quadrant behavior shared with El Salvador, Honduras, and Mexico.
  - Large gaps and opposite movements between actual and perceived inequality suggest that actual income measures alone may not capture drivers of social discontent.

- C. Inequality of access
  - Concept: unequal access to affordable essential goods and services (education, housing, healthcare).
  - Minimum wage:
    - 2017 cross-country comparison indicates Chile’s minimum wage is broadly in line with international standards given its level of income per capita (Chile positioned within the central “cloud” of observations).
  - Social spending:
    - Definition used: total central government spending minus interest, capital projects, and central government consumption of goods and services.
    - Chile’s social spending has increased over the past three decades both as a share of total government expenditure and as a share of GDP.
    - Upward trend in social expenditure particularly evident over the past decade when Chile introduced a number of social programs.
  - Regional comparisons (IMF Fiscal Affairs Department figures):
    - Overall social spending (share of GDP) in Chile is higher than in Mexico and Peru and only slightly lower than in Brazil.
    - Chile’s spending on healthcare and education is the highest among the regional peers examined.
    - Chile’s spending on social protection only lags behind Brazil among the regional peers.

- Health spending (four dimensions summarized)
  - Overall current health expenditure:
    - Current health expenditure in Chile has been rising fast and is now high relative to Chile’s development path.
    - Over the past decade and a half health spending increased by about 1½ percent of GDP (from about 6½ percent of GDP to about 8 percent of GDP).
    - Caveat: part of the increase may reflect higher prices rather than provision of better or more health services.
  - Public vs private health expenditure:
    - Increase in total health spending reflects both faster increase in public health spending and fast growth in private health spending.
    - Compared to countries with similar development path, Chile’s public healthcare spending increased somewhat faster over the last decade.
    - Chile’s private health spending remains consistently close to the top among similarly developed countries and increased considerably faster than in other comparator groups over the past decade.
  - Household out-of-pocket spending:
    - Households’ out-of-pocket health payments in Chile:
      - Are at the top among OECD countries (top-right chart of Figure 14).
      - Are at the very top among countries with a similar path of development as Chile’s (bottom-right chart of Figure 14).
  - Waiting times for surgery:
    - Average waiting time for a surgery in Chile has been between a year and a year and a half in recent years (Figure 15).
  - Policy-relevant observations:
    - Need to contain costs, including on medicines.
    - Improve access and timeliness of service delivery.
    - Authorities’ initiatives cited: expand list of generic brands and imports; request doctors to prescribe based on key active ingredient and not brand.
    - Proposals include: strengthen efficiency, governance, and risk management of the public system (FONASA); create a basic universal health plan to increase transparency and competition; increase solidarity in the private segment by eliminating pre-existing conditions and gender discrimination; ensure public and private providers guarantee the same price to both men and women of a given age.

- D. Education: spending, quality, and returns
  - Resources per student are in line with international benchmarks, but quality of education in Chile is relatively low compared to OECD.
  - Chile’s education spending and quality are among the best in Latin America regional peers (Figures 16 and 17).
  - Returns to education:
    - Klapp and Candia (2016): marginal effect of an additional school year on income in Chile has been declining over 1965–2015.
    - Rodríguez-Castelán et al. (2016): Chile’s education premium (secondary/primary) declined from 1993–2003 to 2003–2013; decline in education premium helped reduce income inequality (Gini index) over same period.
    - Decline in returns to schooling may have contributed to reduced income inequality but also to unmet expectations and social frustration among young graduates.
  - Policy-relevant observations:
    - Enhance quality of education to facilitate intergenerational mobility.
    - Expand and strengthen programs that monitor teacher performance and align teacher career incentives to student performance.
    - Tackle skill mismatches by providing transparent and up-to-date career information, promote employer engagement with education providers (internships), and build on pilot centralized platform for job placement and training.

- E. Human Capital Index
  - Chile’s Human Capital Index (HCI):
    - Lagging behind OECD, albeit reasonably high relative to EMDEs and LA5 peers (Figure 18).

- F. Cost of living and CPI differentials
  - General CPI change 2000–2020:
    - General price level increased by about 100 percent over the period 2000–2020.
    - Prices of essential goods/services increased faster than general CPI:
      - Health: about 20 percentage points more than the general CPI.
      - Food: over 50 percentage points more than the general CPI.
      - Housing: about 60 percentage points more than the general CPI.
      - Education: 100 percentage points more than the general CPI.
  - CPI faced by low-income households (approximation using expenditure weights from Dominican Republic and Hong Kong):
    - CPI facing low-income households may have increased by about 12–19 percentage points faster than the general CPI over 2000–2020.
  - Utilities:
    - Santiago metro fare increased by about 35 percentage points faster than CPI over the past twelve years.
    - Electricity tariff increased by about 20 percentage points faster than CPI over the past seven years (Figure 20).
  - Minimum wage and purchasing power:
    - Minimum wage increased considerably faster than the general CPI, by almost double over the past twenty years (Figure 21).
    - Cumulative increase in minimum wage was larger than the increase in the prices of each essential category plotted in Figure 19.
  - Policy-relevant observations:
    - Need to explore distributional impact of rising cost of living across income distribution, particularly effects on lower/middle and middle class.

### VI. Pensions and household indebtedness
- Pensions:
  - Pension replacement rates in Chile are low relative to OECD economies; deficiency more pronounced for females than for males (Figure 22).
  - Contributing factors: low contribution rates, poor contribution density, under-reporting.
  - Recent studies document expected impact of 2020 early pension withdrawals.
  - Possible policy actions: increase contribution rates; deepen contribution density by reducing informality and facilitating employment for senior citizens; broaden solidarity terms; anchor retirement age to demographic trends.
- Household indebtedness:
  - Household debt in Chile is higher than any regional peers and increased faster over 2008–2018 (upper panel Figure 23).
  - Household indebtedness increased faster than comparator countries over the past decade; only OECD group experienced higher growth during preceding decade (lower panel, top-left chart of Figure 23).
  - Chile’s level of household debt is one of the highest among non-OECD countries globally (lower panel, top-right chart).
  - Chile’s growth in household debt over past two decades has been one of the fastest in the non-OECD world (lower panel, bottom-left chart).
  - Chile’s household indebtedness has been at the top among countries with similar development paths (lower panel, bottom-right chart).

### VII. Inequality of opportunity, competition, political participation, and freedom of choice
- Inequality of opportunity:
  - Chile is one of the most unequal countries and one of the countries where inequality of opportunity (based on circumstances predetermined at birth) accounts for the largest share of overall inequality (Figure 24).
  - Great Gatsby Curve evidence: Chile among countries with high levels and high persistence of inequality across generations.
- Mobility and social immobility:
  - OECD data: countries with higher income inequality have lower earnings mobility across generations; Chile and other Latin American peers occupy low-mobility, high-inequality space (Figure 25).
  - Higher income inequality also associated with lower social mobility (multidimensional, 10 pillars per WEF, 2020).
- Perceptions:
  - Strong positive relationship between actual and perceived earnings mobility (Figure 26) — suggests perceived outcomes align broadly with actual outcomes.
- Competition:
  - Perception of competition in Chile:
    - Declining over the past decade, lowering Chile’s standing relative to comparator groups (Figure 27).
    - Current level perceived as very low internationally, lower than other OECD and many Latin American peers.
    - Low relative to countries with similar level and path of development; Chile dropped from being one of the more competitive in the mid-2000s to the least competitive among similar-development-path countries in latest years.
  - Policy-relevant observations:
    - Improve competition by streamlining regulation, reducing barriers to entry, promoting efficiency in public sector, leveling the playing field in key service sectors (particularly network industries).
- Political participation and legitimacy:
  - Chile categorized as a full democracy but fares considerably worse on extent of political participation.
  - Political participation was relatively low given overall democracy index score already in 2007 and remained an outlier with the lowest participation among countries with similar state of democracy.
  - Possible contributors: 2012 legislative change abolishing mandatory voting and insufficient improvements in other political participation elements.
  - Suggestive evidence of potential disenfranchisement with the political process.
- Freedom of choice:
  - Chile ranks relatively high in world happiness but low on freedom to make life choices:
    - Chileans indicate lower freedom to make life choices than any other country at the same or higher level of happiness (left panel Figure 29).
    - Chile’s score on freedom to make life choices compares poorly with Latin America peers (right panel Figure 29).
  - Implication: perceived lack of freedom to make life choices may reflect impediments to equal opportunities.

### VIII. Fiscal redistribution, revenues, and social safety nets
- Fiscal redistribution (market Gini minus disposable Gini):
  - Over 2007–2017 redistribution in Chile improved more than in other countries (distance from origin on Figure 30 left panel).
  - Overall level of redistribution in Chile remains low internationally:
    - Below almost all OECD peers and many other EMEs, albeit higher than most Latin American countries (Figure 30).
  - Disposable post-taxes Gini: Chile’s income inequality after fiscal redistribution remains among the highest in the world.
  - SWIID vs Commitment to Equity measures:
    - SWIID measures closely related to Commitment to Equity measures, particularly for Chile (Figure 31).
- Revenue structure:
  - Declining mining revenues increased reliance on standard revenue sources (Figure 32).
  - Income taxes (on income, profits, and capital gains) are relatively low compared to OECD average; VAT collection is somewhat higher (Figure 33).
  - Reliance on VAT is relatively high (close to OECD median); reliance on income taxes is considerably lower than majority of OECD peers.
  - Policy-relevant observation: likely need to increase income taxes over the medium term and rebalance direct/indirect taxation in favor of the former.
- Social safety nets (SSNs):
  - Chile has higher coverage across all income quintiles and larger overall SSNs relative to regional peers (Figure 34).
  - Composition advantage mainly in unconditional cash transfers and other social assistance, hinting at possible targeting inefficiencies.
  - Adequacy and incidence:
    - Chile is one of the three countries with lowest level of adequacy (Figure 35).
    - Benefits incidence in Chile is relatively lower for poorer quintiles and relatively higher for richer quintiles compared to regional peers.
  - Policy-relevant observations:
    - Focus future efforts on improving adequacy and fine-tuning benefits incidence, with particular attention to lower income quintiles.

### IX. Regional inequality
- Regional GDP per capita disparity:
  - Chile had one of highest levels of regional inequality across OECD in 2000 but made substantial improvement over 2000–2016.
  - Index measuring ratio of top 20 percent over bottom 20 percent suggests Chile achieved largest improvement in cross-regional income distribution among OECD members, placing Chile’s regional inequality in the middle of OECD by 2016 (Figure 36).

### X. Policy observations and recommendations (selected)
- Pensions system:
  - Increase contribution rates.
  - Deepen contribution density by reducing informality and facilitating employment for senior citizens.
  - Broaden solidarity terms.
  - Anchor retirement age to demographic trends.
- Healthcare:
  - Contain costs (medicines), improve access and timeliness.
  - Strengthen FONASA efficiency, governance, risk management; create basic universal health plan; eliminate pre-existing condition and gender discrimination in private segment; equalize pricing across providers for men and women of given age.
- Education:
  - Expand teacher monitoring programs; align teacher career incentives to student performance.
  - Provide transparent career information to students; promote employer-education engagement (internships); scale centralized job placement and training platform pilot.
- Taxation:
  - Rationalize expenditure and streamline tax exemptions.
  - Increase income taxes over medium term and rebalance direct/indirect tax composition toward direct taxes.
- Competition:
  - Streamline regulation, reduce barriers to entry, promote public sector efficiency, level playing field in services and network industries.
- Public services:
  - Enhance quality, efficiency, and access; ensure affordable transportation (especially commuting) and review utility price formation mechanisms.
- Social safety nets:
  - Improve adequacy and refine benefits incidence, particularly for lower income quintiles.
- Labor market:
  - Reduce informality; introduce work-schedule/location flexibility; discourage high labor turnover; promote female labor force participation (including universal childcare plans); reevaluate training programs; facilitate formal youth employment via combined work-and-study approaches.
  - Consider reviewing severance costs, dismissal procedures, and widening severance benefits eligibility to support job creation, resilience, and labor mobility.

### XI. Concluding observations
- Six-dimension summary of Chile’s social challenges:
  - Income inequality: declined substantially but remains among highest relative to similar level/path of development; extreme inequality places Chile at an “inequality frontier” relative to its development level.
  - Perception vs reality: Chile has the highest gap between perceived and actual inequality in Latin America; perceived inequality increased even as actual inequality declined.
  - Access to essentials: despite minimum wage alignment with international standards and increased social spending, inequality of access to affordable essential services remains critical (private health spending, wait times, rising cost of living, weak education quality, low pensions); households accumulated high and rapidly rising debt.
  - Inequality of opportunity: high internationally; limited perceived competition and market dominance; stagnant political participation suggests possible disenfranchisement.
  - Fiscal redistribution: improved but remains low by international standards; low reliance on income taxes and high reliance on VAT; SSNs show broad coverage but low adequacy and suboptimal incidence.
  - Regional inequality: improved substantially over two decades, placing Chile in the middle of OECD.
- Overall point:
  - No single factor fully explains the 2019 social unrest; jointly, the mosaic of elevated inequality, perceptions, expectations, limited opportunities, and distributional pressures likely helped fuel social discontent.
  - Perceptions and expectations matter as much as actual outcomes; De Tocqueville Paradox is posed as a question for further analysis: “as social conditions and opportunities improve, social frustration grows more quickly” (Ferreira and Schoch, 2020).

*Source: Annex I of the IMF staff paper (wpiea2021174-print-pdf).*

### Annex I ................................................................................................................

### Annex I

### I. Introduction
- Social unrest beginning October 18, 2019 in Chile was unprecedented in magnitude since 1990 and widely unexpected by analysts and authorities.
- Objective: place Chile’s social developments in historical and international perspective to understand underlying discontent and identify social areas with progress and those needing further improvement.
- Six manifestations of inequality used as organizing framework:
  - (i) income inequality;
  - (ii) perceived inequality;
  - (iii) inequality of access;
  - (iv) inequality of opportunity;
  - (v) inequality of redistribution;
  - (vi) cross-regional inequality.
- Companion paper (Hadzi-Vaskov, Pienknagura, and Ricci, 2021) analyzes macroeconomic effects of social unrest; this paper focuses on descriptive and comparative social analysis.

### II. Data and criteria for comparisons
- Descriptive analysis uses indicators from more than a dozen sources (see Annex I of the source).
- Four comparative panel-chart criteria:
  - Overtime and relative to other groups: Chile vs averages for OECD, LA5, and EM.
  - Cross section: average indicator values over 2015–2018 across countries.
  - Change: change in indicator for 2000–2018 for Chile versus other countries.
  - Similar development path: countries with similar initial (2000) and final (2018) Real PPP GDP per capita within –/+5000 Real PPP GDP per capita (identifies 15 comparator countries).
- LA5 defined as: Argentina, Brazil, Colombia, Mexico, and Peru.
- Vulnerable population definition used in the analysis: population living off US$5.5-13 per day (2011 PPP).

### III. Chile’s strong macroeconomic performance
- Stylized facts:
  - Average annual GDP growth rate for Chile, 1990–2018: 4.7 percent.
  - Average annual GDP growth rate for LAC region, 1990–2018: 2.8 percent.
- Chile recorded very strong macroeconomic policy frameworks and institutional quality compared to EMEs.
- Macroeconomic performance coincided with significant reductions in poverty and improved living conditions.

### IV. Poverty and vulnerability
- Poverty trends:
  - Multiple poverty lines (World Bank and national) show a significant decline in Chile’s poverty rate over three decades.
  - Extreme poverty measured at US$1.5 (2011 PPP) has been virtually eliminated.
  - Over roughly two decades (2000–2018), Chile reduced the poverty rate by about 25 percentage points.
  - Chile’s average poverty rate over 2015–2018 places it among the 15 economies with the lowest poverty rate in the sample.
  - Relative to countries with similar development paths, Chile moved from one of the highest poverty rates in 2000 to one of the lowest in the most recent period.
- Vulnerable population:
  - In 2005 Chile had a larger share of vulnerable population than the LAC region, but achieved a significant decline over the next decade.
  - By 2015–2018, Chile reached one of the lowest shares of vulnerable population among LAC economies in the sample.

### V. Dimensions of inequality — key findings

A. Income inequality
- Multiple Gini measures (OECD, SWIID, World Bank; market income vs. disposable income) point to a significant reduction in income inequality in Chile over the past two decades.
- Despite declines, Chile’s income inequality remains among the highest globally:
  - Chile’s Gini index declined over time but remains one of the highest on the global scale and consistently at the top among countries with similar development path.
- Income shares:
  - Top 10 percent: income share of the top decile declined over three decades but remains one of the highest among comparators and consistently at the top among similarly developed countries.
  - Bottom 10 percent: income share for the bottom decile improved over the last two decades but remains one of the lowest in international comparisons; among countries with similar development path, Chile’s bottom decile income share was among the lowest in the 2000s and has deteriorated in relative terms since then.
- Inequality frontier observation:
  - No country with Chile’s level of development (income per capita) or higher exhibits a similar or higher Gini index; Chile is located on the “inequality frontier” for its development level.

B. Perceived inequality
- Perception vs actual inequality in Latin America:
  - Chile shows the largest gap between perceived inequality (the highest in the sample) and actual inequality among Latin American countries.
  - Over 1997–2015, Chile is among countries where perceived inequality increased even as actual inequality (Gini) declined — an anomalous top-left quadrant behavior shared with El Salvador, Honduras, and Mexico.
  - Large gaps and opposite movements between actual and perceived inequality suggest that actual income measures alone may not capture drivers of social discontent.

C. Inequality of access
- Concept: unequal access to affordable essential goods and services (education, housing, healthcare).
- Minimum wage:
  - 2017 cross-country comparison indicates Chile’s minimum wage is broadly in line with international standards given its level of income per capita (Chile positioned within the central “cloud” of observations).
- Social spending:
  - Definition used: total central government spending minus interest, capital projects, and central government consumption of goods and services.
  - Chile’s social spending has increased over the past three decades both as a share of total government expenditure and as a share of GDP.
  - Upward trend in social expenditure particularly evident over the past decade when Chile introduced a number of social programs.
- Regional comparisons (IMF Fiscal Affairs Department figures):
  - Overall social spending (share of GDP) in Chile is higher than in Mexico and Peru and only slightly lower than in Brazil.
  - Chile’s spending on healthcare and education is the highest among the regional peers examined.
  - Chile’s spending on social protection only lags behind Brazil among the regional peers.

Health spending (four dimensions analyzed)
- Overall current health expenditure:
  - Current health expenditure in Chile has been rising fast and is now high relative to Chile’s development path.
  - Over the past decade and a half health spending increased by about 1½ percent of GDP (from about 6½ percent of GDP to about 8 percent of GDP).
  - Caveat: part of the increase may reflect higher prices rather than provision of better or more health services.
- Public vs private health expenditure:
  - Increase in total health spending reflects both faster increase in public health spending and fast growth in private health spending.
  - Compared to countries with similar development path, Chile’s public healthcare spending increased somewhat faster over the last decade.
  - Chile’s private health spending remains consistently close to the top among similarly developed countries and increased considerably faster than in other comparator groups over the past decade.
- Household out-of-pocket spending:
  - Figure set includes household out-of-pocket health spending as one of the four healthcare-spending dimensions examined (no standalone numeric value provided in the excerpt).

### VI. Organization and next steps in the full paper
- The paper proceeds from descriptive cross-country and time-series evidence toward identifying policy changes needed to address the social discontent that erupted in October 2019.
- Subsequent sections (not fully reproduced in this Annex excerpt) develop policy priorities and concluding remarks based on the six inequality dimensions.

*Source: Annex I of the IMF staff paper (wpiea2021174-print-pdf).*

### 2.8 percent of GDP to about 3.3 percent of GDP.

### wpiea2021174-print-pdf - 2.8 percent of GDP to about 3.3 percent of GDP.

### Health: spending, out-of-pocket, and service delivery
- Health spending increased significantly over past decades; a countervailing concern is persistent complaints about quality of services.
- Households’ out-of-pocket health payments in Chile:
  - Are at the top among OECD countries (top-right chart of Figure 14).
  - Are at the very top among countries with a similar path of development as Chile’s (bottom-right chart of Figure 14).
- Waiting times for surgery:
  - Average waiting time for a surgery in Chile has been between a year and a year and a half in recent years (Figure 15).
- Policy-relevant observations:
  - Need to contain costs, including on medicines.
  - Improve access and timeliness of service delivery.
  - Authorities’ initiatives cited:
    - Expand list of generic brands and imports.
    - Request doctors to prescribe based on key active ingredient and not brand.
    - Proposals to: strengthen efficiency, governance, and risk management of the public system (FONASA); create a basic universal health plan to increase transparency and competition; increase solidarity in the private segment by eliminating pre-existing conditions and gender discrimination; ensure public and private providers guarantee the same price to both men and women of a given age.

### Education: spending, quality, and returns
- Education spending vs. quality:
  - Resources per student are in line with international benchmarks, but quality of education in Chile is relatively low compared to OECD.
  - Chile’s education spending and quality are among the best in Latin America regional peers (Figures 16 and 17).
- Returns to education:
  - Klapp and Candia (2016): marginal effect of an additional school year on income in Chile has been declining over 1965–2015.
  - Rodríguez-Castelán et al. (2016): Chile’s education premium (secondary/primary) declined from 1993–2003 to 2003–2013; decline in education premium helped reduce income inequality (Gini index) over same period.
  - Decline in returns to schooling may have contributed to reduced income inequality but also to unmet expectations and social frustration among young graduates.
- Policy-relevant observations:
  - Enhance quality of education to facilitate intergenerational mobility.
  - Expand and strengthen programs that monitor teacher performance and align teacher career incentives to student performance.
  - Tackle skill mismatches by providing transparent and up-to-date career information, promote employer engagement with education providers (internships), and build on pilot centralized platform for job placement and training.

### Human Capital Index
- Chile’s Human Capital Index (HCI):
  - Lagging behind OECD, albeit reasonably high relative to EMDEs and LA5 peers (Figure 18).

### Cost of living and CPI differentials
- General CPI change 2000–2020:
  - General price level increased by about 100 percent over the period 2000–2020.
  - Prices of essential goods/services increased faster than general CPI:
    - Health: about 20 percentage points more than the general CPI.
    - Food: over 50 percentage points more than the general CPI.
    - Housing: about 60 percentage points more than the general CPI.
    - Education: 100 percentage points more than the general CPI.
- CPI faced by low-income households (approximation using expenditure weights from Dominican Republic and Hong Kong):
  - CPI facing low-income households may have increased by about 12–19 percentage points faster than the general CPI over 2000–2020.
- Utilities:
  - Santiago metro fare increased by about 35 percentage points faster than CPI over the past twelve years.
  - Electricity tariff increased by about 20 percentage points faster than CPI over the past seven years (Figure 20).
- Minimum wage and purchasing power:
  - Minimum wage increased considerably faster than the general CPI, by almost double over the past twenty years (Figure 21).
  - Cumulative increase in minimum wage was larger than the increase in the prices of each essential category plotted in Figure 19.
- Policy-relevant observations:
  - Need to explore distributional impact of rising cost of living across income distribution, particularly effects on lower/middle and middle class.

### Pensions and household indebtedness
- Pensions:
  - Pension replacement rates in Chile are low relative to OECD economies; deficiency more pronounced for females than for males (Figure 22).
  - Contributing factors: low contribution rates, poor contribution density, under-reporting.
  - Recent studies document expected impact of 2020 early pension withdrawals.
  - Possible policy actions (listed in policy section): increase contribution rates; deepen contribution density by reducing informality and facilitating employment for senior citizens; broaden solidarity terms; anchor retirement age to demographic trends.
- Household indebtedness:
  - Household debt in Chile is higher than any regional peers and increased faster over 2008–2018 (upper panel Figure 23).
  - Household indebtedness increased faster than comparator countries over the past decade; only OECD group experienced higher growth during preceding decade (lower panel, top-left chart of Figure 23).
  - Chile’s level of household debt is one of the highest among non-OECD countries globally (lower panel, top-right chart).
  - Chile’s growth in household debt over past two decades has been one of the fastest in the non-OECD world (lower panel, bottom-left chart).
  - Chile’s household indebtedness has been at the top among countries with similar development paths (lower panel, bottom-right chart).

### Inequality of opportunity, competition, political participation, and freedom of choice
- Inequality of opportunity:
  - Chile is one of the most unequal countries and one of the countries where inequality of opportunity (based on circumstances predetermined at birth) accounts for the largest share of overall inequality (Figure 24).
  - Great Gatsby Curve evidence: Chile among countries with high levels and high persistence of inequality across generations.
- Mobility and social immobility:
  - OECD data: countries with higher income inequality have lower earnings mobility across generations; Chile and other Latin American peers occupy low-mobility, high-inequality space (Figure 25).
  - Higher income inequality also associated with lower social mobility (multidimensional, 10 pillars per WEF, 2020).
- Perceptions:
  - Strong positive relationship between actual and perceived earnings mobility (Figure 26) — suggests perceived outcomes align broadly with actual outcomes.
- Competition:
  - Perception of competition in Chile:
    - Declining over the past decade, lowering Chile’s standing relative to comparator groups (Figure 27).
    - Current level perceived as very low internationally, lower than other OECD and many Latin American peers.
    - Low relative to countries with similar level and path of development; Chile dropped from being one of the more competitive in the mid-2000s to the least competitive among similar-development-path countries in latest years.
  - Policy-relevant observations:
    - Improve competition by streamlining regulation, reducing barriers to entry, promoting efficiency in public sector, leveling the playing field in key service sectors (particularly network industries).
- Political participation and legitimacy:
  - Chile categorized as a full democracy but fares considerably worse on extent of political participation.
  - Political participation was relatively low given overall democracy index score already in 2007 and remained an outlier with the lowest participation among countries with similar state of democracy.
  - Possible contributors: 2012 legislative change abolishing mandatory voting and insufficient improvements in other political participation elements.
  - Suggestive evidence of potential disenfranchisement with the political process.
- Freedom of choice:
  - Chile ranks relatively high in world happiness but low on freedom to make life choices:
    - Chileans indicate lower freedom to make life choices than any other country at the same or higher level of happiness (left panel Figure 29).
    - Chile’s score on freedom to make life choices compares poorly with Latin America peers (right panel Figure 29).
  - Implication: perceived lack of freedom to make life choices may reflect impediments to equal opportunities.

### Fiscal redistribution, revenues, and social safety nets
- Fiscal redistribution (market Gini minus disposable Gini):
  - Over 2007–2017 redistribution in Chile improved more than in other countries (distance from origin on Figure 30 left panel).
  - Overall level of redistribution in Chile remains low internationally:
    - Below almost all OECD peers and many other EMEs, albeit higher than most Latin American countries (Figure 30).
  - Disposable post-taxes Gini: Chile’s income inequality after fiscal redistribution remains among the highest in the world.
  - SWIID vs Commitment to Equity measures:
    - SWIID measures closely related to Commitment to Equity measures, particularly for Chile (Figure 31).
- Revenue structure:
  - Declining mining revenues increased reliance on standard revenue sources (Figure 32).
  - Income taxes (on income, profits, and capital gains) are relatively low compared to OECD average; VAT collection is somewhat higher (Figure 33).
  - Reliance on VAT is relatively high (close to OECD median); reliance on income taxes is considerably lower than majority of OECD peers.
  - Policy-relevant observation: likely need to increase income taxes over the medium term and rebalance direct/indirect taxation in favor of the former.
- Social safety nets (SSNs):
  - Chile has higher coverage across all income quintiles and larger overall SSNs relative to regional peers (Figure 34).
  - Composition advantage mainly in unconditional cash transfers and other social assistance, hinting at possible targeting inefficiencies.
  - Adequacy and incidence:
    - Chile is one of the three countries with lowest level of adequacy (Figure 35).
    - Benefits incidence in Chile is relatively lower for poorer quintiles and relatively higher for richer quintiles compared to regional peers.
  - Policy-relevant observations:
    - Focus future efforts on improving adequacy and fine-tuning benefits incidence, with particular attention to lower income quintiles.

### Regional inequality
- Regional GDP per capita disparity:
  - Chile had one of highest levels of regional inequality across OECD in 2000 but made substantial improvement over 2000–2016.
  - Index measuring ratio of top 20 percent over bottom 20 percent suggests Chile achieved largest improvement in cross-regional income distribution among OECD members, placing Chile’s regional inequality in the middle of OECD by 2016 (Figure 36).

### Policy observations and recommendations (selected)
- Pensions system:
  - Increase contribution rates.
  - Deepen contribution density by reducing informality and facilitating employment for senior citizens.
  - Broaden solidarity terms.
  - Anchor retirement age to demographic trends.
- Healthcare:
  - Contain costs (medicines), improve access and timeliness.
  - Strengthen FONASA efficiency, governance, risk management; create basic universal health plan; eliminate pre-existing condition and gender discrimination in private segment; equalize pricing across providers for men and women of given age.
- Education:
  - Expand teacher monitoring programs; align teacher career incentives to student performance.
  - Provide transparent career information to students; promote employer-education engagement (internships); scale centralized job placement and training platform pilot.
- Taxation:
  - Rationalize expenditure and streamline tax exemptions.
  - Increase income taxes over medium term and rebalance direct/indirect tax composition toward direct taxes.
- Competition:
  - Streamline regulation, reduce barriers to entry, promote public sector efficiency, level playing field in services and network industries.
- Public services:
  - Enhance quality, efficiency, and access; ensure affordable transportation (especially commuting) and review utility price formation mechanisms.
- Social safety nets:
  - Improve adequacy and refine benefits incidence, particularly for lower income quintiles.
- Labor market:
  - Reduce informality; introduce work-schedule/location flexibility; discourage high labor turnover; promote female labor force participation (including universal childcare plans); reevaluate training programs; facilitate formal youth employment via combined work-and-study approaches.
  - Consider reviewing severance costs, dismissal procedures, and widening severance benefits eligibility to support job creation, resilience, and labor mobility.

### Concluding observations
- Six-dimension summary of Chile’s social challenges:
  - Income inequality: declined substantially but remains among highest relative to similar level/path of development; extreme inequality places Chile at an “inequality frontier” relative to its development level.
  - Perception vs reality: Chile has the highest gap between perceived and actual inequality in Latin America; perceived inequality increased even as actual inequality declined.
  - Access to essentials: despite minimum wage alignment with international standards and increased social spending, inequality of access to affordable essential services remains critical (private health spending, wait times, rising cost of living, weak education quality, low pensions); households accumulated high and rapidly rising debt.
  - Inequality of opportunity: high internationally; limited perceived competition and market dominance; stagnant political participation suggests possible disenfranchisement.
  - Fiscal redistribution: improved but remains low by international standards; low reliance on income taxes and high reliance on VAT; SSNs show broad coverage but low adequacy and suboptimal incidence.
  - Regional inequality: improved substantially over two decades, placing Chile in the middle of OECD.
- Overall point:
  - No single factor fully explains the 2019 social unrest; jointly, the mosaic of elevated inequality, perceptions, expectations, limited opportunities, and distributional pressures likely helped fuel social discontent.
  - Perceptions and expectations matter as much as actual outcomes; De Tocqueville Paradox is posed as a question for further analysis: “as social conditions and opportunities improve, social frustration grows more quickly” (Ferreira and Schoch, 2020).

*Source: wpiea2021174-print-pdf - 2.8 percent of GDP to about 3.3 percent of GDP.*

### ANNEX I

### ANNEX I

### Data Sources
- IMF World Economic Outlook
- World Bank World Development Indicators
- LAC Equity Lab
- CEDLAS
- Standardized World Income Inequality Database (SWIID)
- OECD Indicators
- World Economic Forum Global Competitiveness Index Database
- World Bank Human Capital Index Database
- IMF Global Debt Database
- IMF FAD Social Protection & Labor - Assessment Tool (SPL-AT)
- Economist Intelligence Unit
- World Happiness Report
- Commitment to Equity Institute Data Center on Fiscal Redistribution
- Haver
- National authorities databases

### References
- Albagli, E., M. Calani, M. Hadzi-Vaskov, M. Marcel, L.A. Ricci (2020), “Comfort in Floating: Taking Stock of  Twenty Years of Freely-Floating Exchange Rate in Chile”, IMF Working Paper 20/100.
- Bems, R., F. Caselli, F. Grigoli, B. Gruss, and W. Lian (2018), “Expectations’ Anchoring and Inflation Persistence,” IMF Working Paper 18/280.
- Corak, M. (2011), “Inequality from Generation  to Generation: the United States in Comparison”, mimeo, University of Ottawa, Canada.
- EIU (2020), “Democracy Index 2019”, Economist Intelligence Unit.
- Evans, C. and S. Pienknagura (forthcoming), “Assessing Chile’s Pension System: Challenges and Reform Options”, IMF Working Paper.
- Ferreira, F.H.G., and J. Gignoux (2008), “The Measurement of Opportunity: Theory and An Application to Latin America”, Policy Research Working Paper No. 4659, World Bank, Washington, DC.
- Ferreira, F.H.G. and M. Schoch (2020), “Inequality and social unrest in Latin America: The Tocqueville Paradox revisited”, World Bank Blog.
- Hadzi-Vaskov, M., S. Pienknagura, and L.A. Ricci (2021), “The Macroeconomic Impact of Social Unrest”, IMF Working Paper 21/135.
- Helliwell, J.F., R. Layard, and J.D. Sachs (2019), World Happiness Report 2019, New York: Sustainable Development Solutions Network.
- IMF (2018), Staff Report for 2018 Article IV Consultation, IMF Country Report 18/311.
- IMF FAD Social Protection & Labor - Assessment Tool (SPL-AT)
- IMF (2021a), Staff Report for 2021 Article IV Consultation, IMF Country Report 2021/083.
- IMF (2021b), Chile: Selected Issues Paper, IMF Country Report 2021/084.
- Jadresic, E. (2019), “The Roots of Chile’s Social Discontent”, Financial Times, November 8.
- Klapp, F. and A. Candia (2016), “Estimación del premio o retorno a la educación en Chile”, Serie Informe Social, Libertad y Desarrollo, November 2016.
- McKinsey (2020), The Social Contract in the 21th Century, McKinsey Global Institute, February 2020.
- Rodríguez-Castelán, C., L.F. Lopez-Calva, N. Lustig, D. Valderrama (2016), “Understnading the Dynamics of Labor Income inequality in Latin America”, World Bank Policy Reseach Working Paper, No. 7795, World Bank, Washington, DC.
- Roemer, J.E. (1998), Equality of Opportunity, Cambridge, MA, Harvard University Press.
- Sachs, J. (2019), “Why Rich Cities Rebel?”, Project Syndicate.
- Solt, F. (2020), “Measuring Income inequality Across Countries and Over Time: Standardized World Income Inequality Database”, Social Science Quarterly 101(3): 1183-1199.
- UNDP (2017), Desiguales: Orígenes, cambios y desafíos de la brecha social en Chile, Santiago de Chile, United National Development Program.
- WEF (2019), Global Competitiveness Report 2019, World Economic Forum.
- WEF (2020), “The Global Social Mobility Report 2020: Equality, Opportunity, and a New Economic Imperative”, Insight Report, January 2020, World Economic Forum.
- World Bank (2020), The Human Capital index 2020 Update: Human Capital in the Time of COVID-19, World Bank, Washington, DC.
- www.equalchances.org

*Source: https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021174-print-pdf.pdf*

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_Source: https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021174-print-pdf.pdf_