Economic Policy Reforms 2023

Chile

See more data for Chile on the related dashboard.

Product and labour markets functioning

Performance gaps

• Low competitive pressures in several sectors contribute to weaken productivity. Even though Chile’s regulatory requirements on product markets are slightly less restrictive than the OECD average, lengthy and complex regulations and licensing procedures, particularly at the municipal level, hamper entrepreneurship and competition.

Recommendations

• Streamline and unify municipal licensing procedures and foster the digitalisation of relevant procedures.

• Ensure an adequate budget for the Competition Authority for the funding of market studies.

Digital transition

Performance gaps

• High-speed fixed broadband penetration is low compared to the OECD average, with large disparities between rural and urban areas. Regulation on concessions in the communication sector is burdensome.

• SMEs lag in the adoption and use of digital tools, and in R&D and innovation expenditure.

Recommendations

• Lower entry barriers to the communication sector by replacing the existing regulation for concessions.

• Set provisions for passive communication infrastructure sharing and establish clear criteria regulating rights of way for deployment.

• Boost public support to SMEs through targeted programmes to facilitate the adoption of digital tools.

Inclusiveness, social protection, and ageing

Performance gaps

• Many middle-income Chileans have inadequate old-age pension levels.

• Higher mandatory contributions raise the cost of formal job creation, driving many low-skilled workers into informality.

• There are gaps in social protection, particularly for informal workers, and income-support programmes are very fragmented.

Recommendations

• Consider raising pension levels and applying a progressive contribution rate schedule, ensuring strong incentives for formal job creation.

• Establish a comprehensive strategy to foster formalization that includes lowering non-wage labour costs, improving skills, and strengthening the tax administration.

• Merge current cash transfer programmes into a single conditional guaranteed minimum-income scheme.

Climate transition

Performance gaps

• Despite high potential for production of renewable energy, coal combustion is still a major source of electricity. The share of electricity generated from renewable sources is just 47%.

• The level of the carbon tax is low, does not promote renewable energy sources and hampers the development of an emission-trading scheme.

Recommendations

• Use carbon taxes and cap and trade systems to accelerate decarbonisation, while protecting the purchasing power of vulnerable households with policies like targeted cash transfers instead of price subsidies.

• Consider accelerating exemptions from the carbon tax for power plants that use renewable energy sources.

Overall performance