Economic Inequality in Chile a Major Burden for the Poor

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SANTIAGO — Chile is among South America’s most prosperous nations, with a growth rate of 2.1 percent and a flourishing youth population. The average real incomes of the people have been continuously rising for the past 25 years. Chile also earns a lot of export revenue from its copper industry and international trade.

But in recent times, Chile has had to grapple with problems in the labor market, deficiency in infrastructure, redistribution of income, diversification and economic inequality. The plunge in copper prices has forced workers to adapt by increasing output and productivity.

According to the Organization for Economic Cooperation and Development (OECD), economic inequality in Chile is a major problem. Its Gini coefficient value stands at a record 0.50, one of the highest inequality coefficients in the world. Gini coefficients are used to measure the wealth distribution across many countries. It is a numerical value ranging from a minimum of zero (perfectly equal) to a maximum of one (perfectly unequal).

Consequently, the incomes of the richest 10 percent are around 26 times higher than the incomes of the poorest 10 percent of the population. Despite having a burgeoning economy, the existing economic inequality in Chile may impede social and economic progress in the long run. The foundation of the problem stems from an ineffective and inequitable taxation system, which often creates a massive tax burden on the poor.

Despite the high tax bracket, a higher proportion of tax tends to be levied on individuals from poorer socio-economic backgrounds. This system greatly reduces the disposable incomes and consumption ability of the common people. As a result, the poor in Chile often suffer from malnourishment and hunger because they are unable to afford basic necessities.

Poor education also forms the bedrock of the economic inequality in Chile. Thousands of young people have recently called for more education reform in peaceful demonstrations. A majority of the population is lacking the skills that are essential for attaining good jobs and incomes. Moreover, this inequality is also prevalent in higher education as the poor are unable to pay for college and other institutions of higher learning.

Additionally, Chile has also had to juggle the issue of corruption at the hands of the rich and powerful oligarchs in the country. These powerful entities often evade tax. Similarly, the Ministry of Public Services PPP unit has also been caught up in various corruption scandals since 2002 due to the lack of resources and misallocation of funds.

The government is embarking on a long-term development plan for its international trade with other countries to boost the overall standard of living of the people and reduce the economic inequality in Chile. Consequently, Chile has also signed a free bilateral trade agreement with China to bolster its free trade. Chile is also aiming to extend this agreement to South Korea and all of its other Latin American neighbors.

The government is currently pushing for education reform for the first time in 35 years. Intense discussions are being conducted by the parliament. The government is looking to increase public funding, and encourage the development of professional and university education by combatting transparency issues.

It is important to reform key institutions so that economic inequality in Chile can be addressed. It is essential to crack down on excessive bureaucracy, misallocation of funds, transparency issues and corruption so that the poor are not burdened by the actions of the rich and the other inefficiencies in the system.

Shivani Ekkanath

Photo: Flickr

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Shivani Ekkanath

Shivani is an Indian writer for The Borgen Project living in Singapore. Her hobbies are music, dance and writing. She loves reading about current affairs, political relations and other social issues.

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