Complementarity between flat tax and conditional cash transfers to improve the income distribution in Chile

This study analyzes redistributive policies in Chile associated with the establishment of a flat income tax, and the increase of conditional cash transfers using a computable general equilibrium model combined with microsimulations. The results show that the Gini coefficient under the baseline scenario projected to 2020 would fall by only 0.018 points, while it would be reduced by 0.037 in the short term and in 0.059 points to 2020 with a flat tax of 25% which increases the amount and number of beneficiaries of conditional cash transfers until decil 2 and maintains budget balance. Moreover, poverty would be significantly reduced as a consequence of transfer payments, which compensate the fall in labor income generated by the tax reform, at least in the poorest quintiles.