2016 Index of Economic Freedom

Chile

overall score77.7
world rank7
Rule of Law

Property Rights85.0

Freedom From Corruption73.0

Limited Government

Government Spending83.1

Fiscal Freedom74.8

Regulatory Efficiency

Business Freedom72.1

Labor Freedom64.3

Monetary Freedom82.9

Open Markets

Trade Freedom86.4

Investment Freedom85.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 17.8 million
  • GDP (PPP):
    • $409.3 billion
    • 1.8% growth
    • 4.6% 5-year compound annual growth
    • $22,971 per capita
  • Unemployment:
    • 6.4%
  • Inflation (CPI):
    • 4.4%
  • FDI Inflow:
    • $22.9 billion
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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.

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Background

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.

Rule of LawView Methodology

Property Rights 85.0 Create a Graph using this measurement

Freedom From Corruption 73.0 Create a Graph using this measurement

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.

Limited GovernmentView Methodology

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.

Regulatory EfficiencyView Methodology

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.

Open MarketsView Methodology

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.

Country's Score Over Time

Bar Graph of Chile Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Chile77.7-0.8
2The Bahamas70.92.2
3Colombia70.8-0.9
4Saint Lucia70-0.2
5Saint Vincent and the Grenadines68.80.8
6Uruguay 68.80.2
7Barbados68.30.4
8Jamaica 67.5-0.2
9Peru67.4-0.3
10Costa Rica 67.40.2
11Dominica670.9
12El Salvador 65.1-0.6
13Panama 64.80.7
14Trinidad and Tobago62.9-1.2
15Guatemala 61.81.4
16Paraguay 61.50.4
17Dominican Republic610.0
18Nicaragua 58.61.0
19Honduras 57.70.3
20Belize57.40.6
21Brazil56.5-0.1
22Guyana55.4-0.1
23Suriname53.8-0.4
24Haiti51.30.0
25Ecuador48.6-0.6
26Bolivia47.40.6
27Argentina43.8-0.3
28Venezuela 33.7-0.6
29Cuba29.80.2
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