2017 Index of Economic Freedom

Chile

overall score76.5
world rank10
Rule of Law

Property Rights68.2

Government Integrity70.5

Judicial Effectiveness63.7

Government Size

Government Spending82.2

Tax Burden77.6

Fiscal Health96.1

Regulatory Efficiency

Business Freedom72.3

Labor Freedom64.3

Monetary Freedom82.2

Open Markets

Trade Freedom86.4

Investment Freedom85.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 18.0 million
  • GDP (PPP):
    • $422.4 billion
    • 2.1% growth
    • 3.9% 5-year compound annual growth
    • $23,460 per capita
  • Unemployment:
    • 6.4%
  • Inflation (CPI):
    • 4.3%
  • FDI Inflow:
    • $20.2 billion
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Chile’s openness to global trade and investment provides a solid basis for economic dynamism. A transparent regulatory environment buttressed by well-secured property rights provides commercial security for the resilient private sector. The independent judicial system continues to sustain the rule of law.

However, several recent policy shifts have put Chile’s economic freedom on a downward trend. The size and scope of government have expanded, substantially undercutting adherence to the principle of limited government. Along with the introduction of redistributive tax measures, the corporate tax rate has been raised and is slated to rise further. Labor reforms have focused on increasing the minimum wage and strengthening union bargaining.

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Background

Socialist President Michelle Bachelet, who began her second nonconsecutive four-year term in 2014, has strayed from the policies of her first term, which largely supported Chile’s successful free-market institutions. She has pushed through major and sometimes flawed tax, labor, education, and other constitutional reforms, and the public perception that she turned a blind eye to her son’s alleged wrongdoing in an ongoing corruption case has undermined her reputation for trustworthiness and moral probity. Nonetheless, Chile retains the region’s best investment profile and benefits from its membership in the Pacific Alliance and a vast network of free-trade agreements. Chile is the world’s leading producer of copper.

Rule of LawView Methodology

Property Rights 68.2 Create a Graph using this measurement

Government Integrity 70.5 Create a Graph using this measurement

Judicial Effectiveness 63.7 Create a Graph using this measurement

Property rights and contracts are strongly respected, and expropriation is rare. The judiciary is independent, and the courts are generally competent and free from political interference. Although Chile remains one of South America’s least corrupt countries, several scandals (including one involving the president’s son) continue to shake public confidence. Corruption was the top political concern of more than one-third of Chileans in 2016.

Government SizeView Methodology

The top individual income tax rate has been cut to 35 percent, but the top corporate tax rate has increased to 25 percent. Other taxes include a value-added tax. The overall tax burden equals 19.8 percent of total domestic income. Government spending has amounted to 24.3 percent of total output (GDP) over the past three years, and budget deficits have averaged 1.4 percent of GDP. Public debt is equivalent to 17.1 percent of GDP.

Regulatory EfficiencyView Methodology

The overall regulatory framework facilitates entrepreneurial activity and productivity growth. However, barriers to market entry remain, and bankruptcy procedures are cumbersome and costly. Increases in the minimum wage have exceeded overall productivity growth in recent years. Rapid expansion of the privately owned power generation sector without government subsidies has included the development of renewable energy sources.

Open MarketsView Methodology

Trade is important to Chile’s economy; the value of exports and imports taken together equals 60 percent of GDP. The average applied tariff rate is 1.8 percent. The investment climate is generally open, but numerous state-owned enterprises distort the economy. The financial system remains one of the region’s most stable and developed, and foreign and domestic banks compete on an equal footing.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Chile76.5-1.2
2Colombia69.7-1.1
3Uruguay 69.70.9
4Jamaica 69.52.0
5Peru68.91.5
6Panama 66.31.5
7Saint Vincent and the Grenadines65.2-3.6
8Saint Lucia65-5.0
9Costa Rica 65-2.4
10El Salvador 64.1-1.0
11Dominica63.7-3.3
12Guatemala 631.2
13Dominican Republic62.91.9
14Paraguay 62.40.9
15Trinidad and Tobago61.2-1.7
16The Bahamas61.1-9.8
17Nicaragua 59.20.6
18Honduras 58.81.1
19Belize58.61.2
20Guyana58.53.1
21Barbados54.5-13.8
22Brazil52.9-3.6
23Argentina50.46.6
24Haiti49.6-1.7
25Ecuador49.30.7
26Suriname48-5.8
27Bolivia47.70.3
28Cuba33.94.1
29Venezuela 27-6.7
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