The rise and fall of income inequality in Chile

Abstract

This paper presents evidence on a rise and fall in income inequality in Chile during the past two decades. We show that income inequality rises from 1990 to 2000 and then falls from 2000 to 2011. We perform simple but informative decompositions to figure out the contributing factors behind that dissimilarity in the behavior of inequality across those two subperiods. Our results are consistent with a story in which economic growth increases the demand for more educated workers, initially increasing inequality. However, those higher returns to education encourage agents to invest in higher education, producing a subsequent human capital deepening that reduces inequality at later stages of the development process.