Executive summary

This report examines the level, composition and evolution of the tax burden in Chile. The Chilean Ministry of Finance appointed a tax commission in 2020 in part to evaluate the design of the tax system in Chile. As input to this work, the OECD was commissioned by the Ministry to undertake an independent analysis on the level, composition and evolution of the tax burden in Chile. The analysis includes an examination of tax shares and income levels in Chile, the tax structure in Chile, tax convergence and a tax share path for Chile in the future.

The report is based on pre-COVID-19 tax revenue data (i.e. up to 2019). The pandemic had a significant impact on economic activity and tax revenues, either directly through the drop in economic activity or indirectly through tax measures that were taken to support the economy. It was agreed that the analysis would be based on pre-crisis revenue data so that tax revenues, the tax structure and tax convergence would not be biased by the impact of the COVID-19 pandemic. As the report was written in 2020, the tax-to-GDP data for Colombia and Costa Rica, who recently joined the OECD in 2020, are not included in the analysis in this report.

Chile’s tax-to-GDP ratio is among the lowest found in the OECD, based on a range of different measures. Chile’s tax-to-GDP ratio and income levels are among the lowest found in the OECD despite convergence with the OECD average over the past 30 years. Chile’s tax-to-GDP ratio is lower than OECD countries when they had a similar income level to Chile (including Australia, Canada, Ireland and New Zealand). The ratio is also low when compared to the OECD average regardless of whether social security contributions (SSCs) are excluded or mandatory contributions to pension or health funds (that are managed by the private sector) are included.

Among OECD countries, Chile’s tax structure is one of the most divergent from the OECD average. However, when compulsory contributions to the private sector are included in the tax-to-GDP ratio, Chile narrows the tax-to-GDP gap with the OECD average. Tax revenues in Chile are concentrated in value-added tax (VAT) and corporate income tax (CIT) while higher income OECD countries depend more on revenues from the personal income tax (PIT) and SSCs. Chile’s current tax structure is also different to the tax structure in the OECD on average when GDP per capita in the OECD was closest to the current level in Chile (in the year 1978). While Chile’s tax structure has converged slowly towards the OECD average tax structure over time, it has done so more slowly than other OECD countries.

The tax structure gap between Chile and the OECD is driven by VAT and PIT. When contributions to the private sector are included in SSCs, the SSC share of tax revenues in Chile is not that dissimilar to the OECD average and the absolute tax structure gap between Chile and the OECD is found to be driven by VAT and PIT. In general, tax structure gaps may point to areas that could be further explored for possible tax reform. In the case of PIT for example, the tax burden on individuals is much lower in Chile driven by a narrow PIT base and low revenues from PIT, including capital income.

The analysis in this report shows that a rising tax-to-GDP ratio over time has been the historical trend in OECD countries on average, although some countries have followed a different path. Evidence from this report supports the notion that lower tax-to-GDP ratio countries like Chile have tended to catch-up slowly with higher tax-to-GDP ratio countries over time (referred to as β-convergence). This implies that Chile may follow the path of other low tax-to-GDP ratio countries.

If Chile followed a similar path to the OECD average from when the OECD had on average a similar level of economic development to Chile’s current level of GDP per capita, Chile’s tax-to-GDP would be set to rise between now and 2029, but the COVID-19 pandemic has made this outcome more uncertain. To take one example, Chile’s tax-to-GDP ratio is similar to Australia when Australia had a similar level of GDP per capita to Chile’s current level. However, tax-to-GDP ratio growth paths are anything but guaranteed as tax-to-GDP ratios change for many reasons including tax policy choices of governments. Moreover, there may be structural elements in an economy that require differing tax levels (expenditure levels, budget deficit, public debt, dependency ratios).

Once the recovery from the COVID-19 pandemic is firmly in place, there is scope for Chile to raise its low tax level and rebalance its tax structure. The post-crisis environment will provide an opportunity for countries to undertake a more fundamental reassessment of their tax and spending policies along with their overall fiscal framework. The analysis in this report finds that few countries have reached economic prosperity historically with a low tax-to-GDP ratio. Some of the favourable demographics in Chile, which helped facilitate a low tax-to-GDP ratio, may be changing. If Chile decides to raise tax revenue, it could do so through base broadening (e.g. limiting tax expenditures rather than tax rate increases and reducing tax evasion and avoidance) and rebalancing the tax mix (e.g. by increasing personal income tax revenues, including revenues from taxes on capital income).

Summary answers to key tax policy questions facing Chile are provided below, based on the analysis in this report. This research has been developed around a series of tax policy questions relevant to Chile across different tax topics. The table below provides a summary of short answers to these questions for Chile, based on the analysis and findings in this report. The summary table has been written for clarity in a non-technical and informal way. More in-depth analysis and caveats can be found in the relevant sections indicated.


This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Member countries of the OECD.

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Note by Turkey
The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union
The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

Photo credits: Cover © Marianna Ianovska/Shutterstock.com.

Corrigenda to publications may be found on line at: www.oecd.org/about/publishing/corrigenda.htm.

© OECD 2022

The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at https://www.oecd.org/termsandconditions.