An Analysis of the Effects of Government Spending on the Income Distribution of Chilean Households

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August 2021
Paper author(s): 
Nicolás Garrido
Jeffrey Morales
Poverty - Inequality - Aid Effectiveness

This paper analyzes the effect that government spending has on income distribution in Chile. The analysis is carried out by computing the Chilean Social Accounting Matrix for the year 2016 with 41 institutions. The results obtained show that households with higher income have a lower elasticity of income to government expenditure than lower-income households. The high elasticity in higher incomes is consequence of the high stake of income and the high elasticity of the low-income households is consequence of a poor participation on the income distribution. Thus, when the effects on the households is measured by its nominal impact, the highest income household receives 10 times more income than lowest income household as consequence of the fiscal expenditure. Using counterfactual simulations it is shown that this regressive effect of government spending has its origin in the unequal distribution of personal income made by markets.


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