Inequality, inflation, cycles and crisis in Chile

Abstract

We analyze the effects of macroeconomic fluctuations, as well as episodes of financial instability and inflation, on inequality indicators in Chile for the period 1960-2014. For this purpose measures of income inequality are constructed from data from the Survey of Employment and Unemployment of the Universidad de Chile. To identify events of banking and inflationary crises we used indicators defined by Carmen M. Reinhart and Kenneth Rogoff. Furthermore, to determine the business cycle and employment fluctuations we use the Gerhart Bry and Charlotte Boschan algorithm. The relationship between episodes of crisis and fluctuations on levels of inequality are estimated from an event study, finding that they are related to fluctuations in inequality. In addition, we perform econometric estimates where inequality indicators relate to different macroeconomic variables and educational performance. The main conclusions are that banking and inflation crises, as well as periods of severe cyclical contractions, tend to increase the levels of inequality in Chile. Our results show that achieving levels of macro-financial stability in the economy contributes not only to sustain growing levels of average income per capita, but also to avoid negative effects on equity.