Revisiting the distributional impacts of water subsidy policy in Chile: a historical analysis from 1998–2015

The distributional incidence of the Chilean water subsidy scheme is revisited by analyzing its evolution from 1998 to 2015. This is one of the only means-tested water subsidies in a developing country and is frequently used as an example in policy discussions and recommendations. Many changes have been introduced in the program since its inception and at least three different targeting instruments have been used to identify needy households in the last 20 years. We find that the incidence of the subsidy is progressive but moderate, with a Gini coefficient of close to 0.3. It has also remained stable between 1998 and 2015. The errors of inclusion and exclusion have also remained stubbornly high. These incidence results are surprising given the efforts made in the Chilean welfare system to target social benefits. Possible explanations for these results are given and compared to other developing country experiences.