2010 OECD Economic Surveys: Chile 2010

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OECD's 2010 survey of Chile's economy. This edition focuses on four key issues currently challenging Chile: overcoming the crisis; strengthening fiscal policy; fostering productivity growth, and improving the quality of Chile's schools. The survey finds that Chile is now emerging from the crisis and that the financial system has held up well, but that some areas of regulation and the fiscal framework need to be strengthened.  Chile needs to enhance productivity growth, broaden innovation policy beyond basic research, and improve the quality of education.

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Fiscal policies for enhanced resilience and equity

Chile’s fiscal rule has provided a powerful protection against global headwinds, making a sizable counter-cyclical stimulus possible without disrupting financial markets and helping to jumpstart activity. This chapter suggests ways to further bolster the economy’s resilience against shocks by sharpening the fiscal rule in copper price booms, while making room to relax it more in severe downturns. Further strengthening the insurance element of the unemployment benefit system would enhance the automatic stabilisers, while allowing for better matches between employment seekers and job vacancies as well as more effective protection for the unemployed. Lowering severance pay in turn would reduce employers’ incentives to favour short term employment to avoid paying it. This could also help attenuate the strong duality of the labour market, with a considerable share of short-term and informal employment. As it embarks on the recovery and on a path of rising living standards, Chile will need to meet a growing demand for public services and work toward achieving a more equitable society. Compared to OECD countries Chile employs relatively small, but well-targeted social spending programmes to reduce poverty and inequality and it has recently expanded many of these along with higher education spending targeted at poor children. Limiting some of the more regressive and less efficient tax expenditures could help finance these spending increases or target the commensurate subsidies more at lower-income households.

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