Introduction to the Issue

Chile has usually been considered one of the outstanding countries in the World in terms of its record in reducing poverty. At the same time, income inequality in Chile remains high by international standards; in fact, cross-country comparisons places Chile amongst those countries with the highest dispersion of monetary income (World Bank 1997, 2001; Bravo and Contreras, 2004). This volume originated from a Workshop on Income Inequality sponsored by the Centro de Microdatos and the Inter-American Development Bank in December 2006. Some of the papers and authors that were part of this seminar sent updated versions of their pieces for a refereeing process. The papers of this volume cover a wide range of poverty and inequality issues. Jere Behrman asks how much might Human Capital policies affect earnings inequalities and poverty? It reviews some recent benefit/cost estimations for human capital intervention in Latin America and the Caribbean, suggesting some investments in which the returns appear quite high. The contribution of schooling attainment targeted to the poor in reducing poverty and income inequality is also reported and illustrated using Chilean data. Alternative simulations suggest to Behrman significant impacts of well-targeted increases in schooling attainment on reducing poverty and inequality. How does the income distribution of Chile compare with other countries? On this topic David Bravo and José Valderrama show that Chile is one of the few countries that adjusts the information obtained from household surveys to make the figures compatible with National Accounts. This paper shows that this adjustment leads to important changes in the top-end of the distribution and to an overestimation in the main inequality indicators in Chile. Chile looks more unequal in international relative terms due to this adjustment. Bravo and Valderrama use Peru and Chile to illustrate their point. Juan Pablo Valenzuela and Suzanne Duryea compare the income distributions of Chile and Uruguay. They show that Chile in 2003 had a Gini Coefficient 8.5 points higher than Uruguay. Using microsimulations, they conclude that most of the difference comes from the wealthier household, particularly those belonging to the top 2%. Another fraction of the differences is explained by differences in returns to higher education in both countries. They also emphasize that the national account adjustment in Chile is overestimating the gap between the Gini coefficients of those countries.