When analyzed independently, social contributions to health and unemployment insurance are found to be regressive with respect to market income plus pensions, with a Kakwani’s progressivity index of -0.17, whereas both direct taxes and direct transfers are progressive with a Kakwani index of 0.45 and 0.82, respectively<sup>20</sup> . This is not a surprising result given the design of the two latter interventions. As Figure 3 shows, the lion’s share of total direct taxes (89 percent) is paid by the wealthy (composed by 6.7 percent of Chile’s population), and the remaining 11 percent is paid almost entirely by the middleclass group that accounts for more than half of the country’s population. The share of direct taxes paid is negligible (0.02 percent) for the third of the population identified as vulnerable, whereas the 7.5 percent of the poor population likely do not pay this kind of taxes.<sup>21</sup> Regarding the concentration of direct transfers —i.e., who receives the benefits—, the same Figure 3 shows that almost two-thirds of the total amount is received by the poor (18.4 percent) and the vulnerable (44.6 percent), whereas the middle-class accounts for most of the remaining share (35.3 percent).

**Figure 3: Concentration of total direct taxes paid on personal income and total direct transfers received, by income group**

<!-- Start of picture text --> 100%<br>Wealthy<br>Share of total transfers: 1.7%<br>Share of direct taxes: 89.0%<br>80% Size of group: 6.7%<br>60%<br>Middle class<br>Share of total transfers: 35.3%<br>40% Share of direct taxes: 11.0%<br>Size of group: 53.8% Vulnerable<br>Total poor Share of total transfers: 44.6%Share of direct taxes: 0.0%<br>20% Share of total transfers: 18.4%Share of direct taxes: 0.0% Size of group: 32.1%<br>Size of group: 7.5%<br>0%<br>-20%<br>-10% 0% 10% 20% 30% 40% 50% 60%<br>Share of total direct transferts received by group (%)<br>Share of total direct taxes paid by group (%)<br><!-- End of picture text --> _Source_ : Author’s elaboration based on Martinez-Aguilar and Ortiz-Juarez (2016). _Notes_ : The “Total poor” group includes the share of the population living in ultra (0.8 percent), extreme (2 percent) and moderate (4.7 percent) poverty, based on the total market income plus pensions concept. The income thresholds to define the groups are the following: less than $1.25/day for the ultra-poor, $1.252.5/day for the extreme poor, $2.5-4/day for the moderate poor, $4-10/day for the vulnerable, $10-50/day for the middle class, and above $50/day for the wealthy. The size of the bubbles is relative to the size of each group as measured with total market income plus pensions.

The Kakwani index, however, cannot tell if these and other fiscal interventions make the whole fiscal system more (un)equal,<sup>22</sup> because the effect of a tax or transfer is not independent from the effect of

> 20 The Kakawani index for all fiscal interventions analyzed is shown in the appendix Table A1.

> 21 If the concentration of direct taxes is analyzed by income deciles instead of income groups, the results are strongly consistent with the findings by Engel, Galetovic and Raddatz (1999), and Castelletti (2013).

> 22 When taxes or transfers are seen as single, independent interventions the Kakwani index is sufficient to unambiguously establish that a progressive (regressive) tax or transfer is equalizing (unequalizing). In a multi tax/transfer setting, however, this direct relationship does not necessarily hold (Lambert, 2001). The Kakwani (1977) index for taxes is defined as the

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