Political economy of inequality in Chile: historical institutions, taxation, and elite power
The chapter analyses the political economy of inequality in Chile from a historical perspective, highlighting the need to use a holistic institutional approach in order to unravel persistent structural inequalities. It examines the power of elites to shape formal rules to their advantage, studying the income distribution of the top 1 per cent and the key characteristics of the Chilean tax system. This institution is analysed for its centrality to the distributive class struggle of a society. The analysis shows that Chile’s income concentration at the top 1 per cent is extremely high, even when compared to OECD countries when the latter had the same level of economic development as Chile today. Therefore, the levels of inequality in Chile cannot be fully explained by market forces, as the neoclassical approach suggests, nor by Chile’s level of economic development; instead, data suggest the existence of an ‘institutional lag’ (exemplified by the current tax system), sustained by asymmetries of power.