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- GDP (PPP):
- $409.3 billion
- 1.8% growth
- 4.6% 5-year compound annual growth
- $22,971 per capita
- Inflation (CPI):
- FDI Inflow:
Several notable measures undertaken in recent years threaten Chile’s well-established tradition of economic freedom. 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.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 77.7 (down 0.8 point)
- Economic Freedom Status: Mostly Free
- Global Ranking: 7th
- Regional Ranking: 1st in the South and Central America/Caribbean Region
- Notable Successes: Rule of Law and Open Markets
- Concerns: Management of Public Finance and Labor Freedom
- Overall Score Change Since 2012: –0.6
Despite recent slippage, Chile remains a global leader in economic freedom. Flexibility and openness have given the small economy an impressive capacity to adjust to external shocks. Chile’s strong commitment to trade and investment liberalization is embodied in various trade pacts. The independent judicial system upholds the rule of law.
Socialist President Michelle Bachelet, serving her second non-consecutive four-year term, was tainted by a 2015 corruption scandal involving her son and his wife and an unusual bank loan made the day after Bachelet’s 2014 election. Concerns about tax hikes and education reforms that roll back choice have reduced investment and dampened consumer confidence. Nonetheless, Chile retains the region’s best investment profile and benefits from its membership in the Pacific Alliance and vast network of free-trade agreements. It was the first South American country to join the Organisation for Economic Co-operation and Development and is the world’s leading producer of copper. The economy is open to imports and is an export powerhouse in minerals, wood, fruit, seafood, and wine.
Although Chile remains among the least corrupt countries in South America, and although its judiciary is independent, competent, and generally free from political interference, a series of unrelated corruption scandals involving a mining firm, a major conglomerate, the president’s son, and the opposition party combined to shake investor confidence in 2015. Property rights and contracts are strongly respected, and expropriation is rare.
The top individual income tax rate remains 40 percent, but the top corporate tax rate has been increased from 20 percent to 22.5 percent. Other taxes include a value-added tax and a property tax. The overall tax burden equals 20.2 percent of GDP. Government spending amounts to 23.7 percent of total domestic output. Public spending has yielded small deficits, and public debt remains under control.
The overall business regulatory framework remains competitive. The labor market is dynamic, although minimum wage increases have exceeded overall productivity growth in recent years. Numerous non-conventional renewable energy projects are under construction to diversify sources of generation in a power sector that is nearly 100 percent privately owned and operated. The government continues to resist pressure to subsidize electricity.
Chile’s average tariff rate is 1.8 percent. Most imports enter duty-free, and trade barriers have been reduced through the Pacific Alliance trade agreement with Colombia, Costa Rica, Mexico, and Peru. Foreign investment in some sectors of the economy can be screened by the government. With the well-capitalized and stable banking sector offering a wider range of services, the financial system remains one of the region’s most competitive.