The impact of the COVID public policies on the Chilean households

ABSTRACT

This work uses survey data to study the immediate impact of the public policies implemented during the COVID crisis on the Chilean households. I show debt deferral initiatives only reach a few highly indebted agents, especially concentrated on richer families. Tax relief measures had a broad reach across the population, but with little financial impact. However, income and expenses support had both a wide reach and a strong impact on households, especially for poorer families. A broadening and scaling up of policy efforts should, therefore, focus on direct income support for families.

KEYWORDS:

• COVID
• Public finance
• Credit
• Inequality

JEL CLASSIFICATION:

• D12
• E21
• G20
• H00.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ By May the government announced a larger Family Emergency Income (Ingreso Familiar de Emergencia, IFE, in Spanish). The first payment of the IFE in May was targeted at families within the first three income quintiles and with an estimated value of more than half of their income coming from informal labour. For the two lower income quintiles, the scheme gave 65, 130, 195, 260, 304, 345, 385, 422, 459, 494 thousand monthly pesos for households with a respective size of 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 or more members. In the third income quintile, the scheme gave 43, 86, 130, 173, 203, 230, 257, 281, 306, 330 thousand monthly pesos for households with a respective size of 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 or more members. In June, July and August, the IFE payments were expanded to the lowest 4 income quintiles, giving 100, 200, 300, 400, 467, 531, 592, 649, 705, 759 thousand monthly pesos for households with a respective size of 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 or more members.

A Middle Class bonus was announced in August with a single payment (not to be repeated) for workers that lost at least 30% of their income relative to the previous year, giving 500, 400, 300, 200 and 100 thousand pesos for workers with a prior monthly income, respectively, between 400 thousand and 1.5 million, 1.5 and 1.6 million, 1.6 and 1.7 million, 1.7 and 1.8 million, and between 1.8 and 2 million pesos.

² This debt deferral started in late March of 2020 as a special scheme from a few banks, but it was quickly copied by all the banks and major credit unions within a few weeks. Banks selected only customers that had no arrears prior to March. During the first 3 weeks of the scheme (April 1 to April 24) the banks had deferred payments for around 12% of their loan portfolio, according to data from the Chilean Banking Authority. According to a BIS note (Coelho and Zamil 2020), this voluntary debt deferral follows adequate policy standards, since compulsory debt deferral schemes can hinder credit risk assessment and the solvency of the financial system.