Wednesday, April 10, 2013

Chile´s Gini Coefficient (calculated from tax records)

Chile tax authority (Servicio de Impuestos Internos, SII) provides an annual statistics of the number of tax payers and taxable income by tax bracket (here).

This information looks as follows (this information includes all types of taxable incomes):

With this information on hand the following Lorenz curve can be constructed, which looks as follows:

Assuming (not entirely realistically) linear income distribution within each tax bracket, the Gini coefficient can be calculated. The following should be noted:
  • calculation is based on individuals and not households
  • calculation only incorporates taxable income and not other forms of income (i.e. state transfer, tax deductions, undeclared incomes)
Also the Gini coefficient was calculated for the after tax income and assuming the tax intake was equally distributed among all taxpayers after redistribution. The effect is actually minimal, which should not be surprising given that despite high marginal rates (40%) only 0.28% of all taxpayer (24'400 individuals) were paying 58.73% of all income taxes in 2012. This should be kept in mind if higher marginal tax rates would ever be suggested as a policy instruments for higher equality (keeping in mind that the fairest taxes are those with a large tax base but low tax rates).

Interestingly despite the shortcomings of the calculation (see above) the results are close do the numbers published in other sources (0.521 for 2009 according to the Worldbank):