Top Income Shares, Business Profits, and Effective Tax Rates in ContemporaryChile

Abstract

We contribute to research on inequality and world top incomes by presenting the first calculations of Chilean top income shares and effective tax rates using individual tax-return microdata from 2005 and 2009. We pay special attention to business income, which dominates at the top. Our analysis includes not only distributed profits, but also the large proportion of accrued profits retained by firms, which are rarely analyzed given the difficulty of identifying individual owners. Our most conservative top 1% income-share estimate is 15%-the fifth highest in the top incomes literature. When distributed profits are adjusted for evasion, the top 1% share reaches 22-26%. When we broaden the income concept to include accrued profits, which we impute to taxpayers using ownership shares calculated from business tax forms, the top 1% share increases to a minimum of 23%. Despite this impressive income concentration, the top 1% pays modest average effective income-tax rates of 15-16%.

The Political Economy of Inequality at the Top in Contemporary Chile

“…This last number is significantly higher than the USA (18 %)-the most unequal developed country-or even Colombia. Fairfield and Jorratt (2014) do not find any clear trend for the period 2004-2011: the income level at the top shows some variance from year to year but does not go down or up overall. López et al (2013) rely on publicly available data, which is divided into eight different tax schedules.…”

“…Their allocation of non-distributed profits is based on shaky assumptions about ownership of assets in Chile. Yet their estimations are not that different than those by Fairfield and Jorratt (2014): according to their calculations, the income level of the top 1 % varies between 22 % (without accounting for non-distributed profits but considering tax evasion) and 31 % when all the numbers are considered. Even the lower bound estimation is higher than in South Africa, Colombia, Argentina and the USA.…”

“…2. Two studies are particularly useful: López et al (2013) and Fairfield and Jorratt (2014). Fairfield and Jorratt (2014) present the most reliable estimations and also offer a longer time spam than other studies.…”

“…Two studies are particularly useful: López et al (2013) and Fairfield and Jorratt (2014). Fairfield and Jorratt (2014) present the most reliable estimations and also offer a longer time spam than other studies. They benefited from access to an unpublished They allocate nondistributed profits to different income groups based on information from business tax returns-something that no other study has done.…”

Sticky Income Inequality in the Spanish Transition (1973-1990)

“…The step is usual in analysis of survey or tax data in other countries, as can be seen, for instance, in ECLAC's reports, Engel et al (1999); Barreix (2011) andFairfield andJorratt (2014).…”