Income Distribution In Chile 1990-1998: Learning from Microeconomic Simulations

This paper contribute to understand the microeconomic determinants of household income dynamics that explain the sustained level of inequality in Chile. We use a micro-simulation based decomposition of distributional changes, developed by Bourguignon et.al. (1998). We estimate a model of participation and earning equation for each economic agent. We examine how the income distribution would change as a result of a different set of microsimulation. In particular, the distributional structure of 1998 is “imposed” in 1990. As a general conclusion, the micro-simulation exercises suggest that income distribution in Chile is very stable and it is not easily affected by a wide range of simulation. However, in spite of such stability, the most interesting results come from a dynamic perspective. A significant increase in inequality would be observed in 1990 if the 1998 “returns” were used. This result is interesting, the inequality indicators remains at the same level between 1990 and 1998, but if the 1998 prices were observed in 1990, then an increase in inequality would be registered. In addition, the evidence shows that gender “price-effect” has no effect on inequality. The changes in the return to schooling and in its convexity increases inequality too. Finally, changes in income distribution are observed only from a dynamic perspective, but they are limited.