Domestic finance
Policy brief: economic survey of Chile, 2010
How to make fiscal policy in Chile more counter-cyclical
Authors:
Publisher:
Organisation for Economic Co-operation and Development , 2010
This policy brief presents the assessment and recommendations of the 2010 OECD Economic Survey of Chile. The paper notes that the global economic recession hit Chile both through a sharp deterioration in its terms of trade and the collapse of world trade. However, decisive macroeconomic stimulus with the rebound in copper prices and the revival of global trade, has contributed to a turnaround in activity.
The paper indicates that unemployment is projected to remain initially high and inflation is likely to stay low. Macroeconomic policy should thus remain supportive in the near term. Furthermore, the paper deems that policy stimulus should be gradually withdrawn so as to set growth on a medium-term sustainable and non-inflationary path.
The paper concludes that:
- sustained growth will need to be accompanied by the right social policies to further reduce poverty and improve income distribution
- the quality and equity of primary and secondary education have to be improved further
- fiscal policy could be made more counter-cyclical by strengthening the automatic stabilisers, including through an enhanced unemployment benefit system
- the government should further strengthen subsidies for low- and medium-income earners while capping tax benefits for high-income earners
- the authorities need to carefully monitor non-bank credit issuers to detect potential threats to systemic stability
- additional reforms to foster competition, entrepreneurship and innovation are needed to stimulate productivity
- to enhance entrepreneurship, Chile should further reduce administrative burdens on start-ups and facilitate entry into specific services sectors
- efforts to strengthen links between firms and universities and support all forms of technological and non-technological innovation in firms should be continued
