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Poverty, inequality and welfare in Chile: Evidence, challenges and lessons

Poverty, inequality and welfare in Chile: Evidence, challenges and lessons. Dante Contreras UNDP and Department of Economics, University of Chile. The evidence. The Chilean strategy to reduce poverty [74-96] Economic growth Targeting social policies to extreme poverty. Results:

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Poverty, inequality and welfare in Chile: Evidence, challenges and lessons

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  1. Poverty, inequality and welfare in Chile: Evidence, challenges and lessons Dante Contreras UNDP and Department of Economics, University of Chile

  2. The evidence • The Chilean strategy to reduce poverty [74-96] • Economic growth • Targeting social policies to extreme poverty. • Results: • We observed a significant reduction in poverty. • However, this strategy is not useful now  social policies move to the second stage.

  3. Poverty and extreme poverty in Chile1990 - 2006 (%)

  4. 21.9 20.3 13.7 13.6 11.5 9.3 7.5 Poverty and age structure 2006 (%)Poverty is concentrated on Children

  5. The evidence also suggests that economic growth has contributed significantly to poverty reduction.Datt-Ravallion decompositions

  6. In sum … • Poverty has declined as a result of economic growth. • Inequality has remained high and stable. [Gini = 0.55] • However, this strategy [EG+TSP] is not enough to: • Reduce inequality. • Reduce vulnerability. • Increase social mobility and opportunities [access to quality education is a pending challenge in Chile]

  7. Challenge 1: Vulnerability • Recent panel surveys have shown that income instability and the risk of falling into poverty are significant for Chileans hhs. • The current design of social policy are not enough to protect from vulnerability.

  8. Panel CASEN: 1996, 2001, 2006 • Panel data: • Between 1996 and 2001, static poverty fell from 22% to 18%, but more that 34% of the population was poor at least at one point in time. • 4,24% of population was poor in 1996, 2001 and 2006. • 29,3% was poor one or two times in 1996, 2001 and 2006.

  9. Chile’s response to these problems • New strategy: social protection system • Chile Solidario  extreme poverty. • Chile Crece Contigo  children.

  10. Chile Solidario • Chile Solidario is a conditional cash transfer oriented to the poor. Similar strategies are currently implemented in Mexico (Opportunities) and Brazil (Bolsa Familia). Those programs have for objectives to integrally support the poor. • Chile Solidario is a program covering about 300,000 households. It targets the extremely poor through a national system that registers beneficiaries on the basis of intense monitoring of families conducted by social workers. • Significant effort in design • Less effort in evaluation: UNDP + WB [next week]

  11. The Infant Protection System Chile Crece Contigo • Is a social protection program oriented to children and their families • From gestation [fifth month of pregnancy] • Until children entry to the school system. • August 2007 • Target to 40% poorest segment of the population • Chile Crece Contigo provides children with access to universal services  • Health, nutrition. • Psycho-emotional support. • Integral development over the life cycle. • Significant effort in design • Less effort in evaluation: UNDP + WB [?]

  12. Challenge 2: Inequality of opportunities and social mobility • In Chile the accumulation of skills is proportional to the resources of the households of origin. • One measure of social mobility is the income elasticity of children’s incomes compared to their parents’ incomes. • In this context, a low elasticity indicates that the socioeconomic background is less important in defining the set of economic opportunities.

  13. Social Mobility  intergenerational elasticity • Chile Contreras and Fuenzalida (2007): 0.65 • Low social mobility

  14. Chile’s response to these problems Education • Since 1990, Chile has significantly increased its educational expenditure. Public education expenditure measured as a percent of GDP increased from 2.6% in 1990 to 4.0% in the year 2006. • Many reforms: teacher incentives, evaluations, supporting poor schools, etc. • Results • Enrollment almost 100% • The educational achievement is still well below from Developed Countries. • PISA (2003) tests, only 5% of Chilean 15 year old students reached the average level of OECD countries. • This outcome is also observed in other LAC: Argentina, Brazil, México and Peru show educational outcomes below to other countries with similar level of per capita expenditure. • Low quality of education. • Unequal access to quality of education. [enrollment is not a problem] • New reforms have been announced  under discussion.

  15. Lessons … • The social strategy based on a sustained economic growth and targeted social policies are exhausted. • Transition in development  transition in policies • Chile is moving to a new stage in social protection program where vulnerability, inequality and equal opportunities are the most important components. • In order to sustain social policies economic growth, macroeconomics and political stability are very important. • The social protection strategy needs to be consolidated [Evaluation + Efficiency] • The access to opportunities [education] is of increasing important.

  16. Inequality

  17. Earnings: Hourly wages: quintiles 58 – 90s Inequality is explained by the top quintile

  18. Income distribution in Chile, CASEN 1990 – 2006

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