INTRODUCTION

Presently, Finland has one of the world’s lowest levels of inequality while simultaneously

maintaining one of the world’s highest standards of living. With a GDP per capita of $47,386

(Background Note: Finland) and a GINI coefficient of 26.8, Finland has engineered the remarkable

transformation from a heavily rural, socially stratified country in the 1960’s to one of the most equal and

developed societies in the world (CIA World Factbook). Because of its rapid transformation, Finland is a

particularly informative case study on the mechanisms through which a nation can seek to not only

drastically reduce inequality, but also establish the foundations for a more developed nation. Yet the key

to Finland’s success was its realization of the importance of creating an educated populace. Since access

to education is one of the best predictors of future prosperity, and thus, potential inequality, expanding

access to education was crucial to not only the transformation of Finland’s economy, but also the

mitigation of inequality. As such, beginning in the 1970’s, Finland launched a series of reforms that

sought to establish free education for all students, irrespective of socioeconomic background, and

standardize the curricula for all schools, both public and private, to eliminate disparities in educational

quality.(Popkewitz) Nevertheless, these reforms were predicated on the accumulation of significant tax

revenues, which is predicated by all sectors of society (right and left) being committed to the continuation

of the Finnish welfare state (Lavery). Thus, a consensus developed among the major sectors of society,

and the formation of consensus within any society is crucial to its future advancement.

ECONOMIC DEVELOPMENT

Finland’s economy was based on agriculture and forestry until the late 1800s (An Economic

History of Finland). The wealth from the agrarian and forestry industries was used to start the

industrialization of Finland. The industrialization started in the middle of the 1800s, which was later than

the rest of Western Europe. Finland’s industrialization took off with the exporting of artisan goods to

Russia and the exporting of Finnish sawmill products to Britain. As Finland industrialized, Russia became

a very important trading partner. By the late 1800s, Finland had an open economy sustained by exports.

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However, in 1917 Finland lost its main trading partner, Russia, because Finland gained its independence

from Russia (An Economic History of Finland).

During World War I and the interwar period, Finland’s economy was able to recover because of

the need for lumber (An Economic History of Finland). During this period, Finland was able to decrease

the difference in their economy and the Western economies because of the constant need for lumber. The

Great Depression did not severely impact Finland’s economy because there still was a constant need for

lumber to create paper. However, by the end of World War II Finland as a whole was hurting. Finland

was forced to pay heavy reparations to the Soviet Union and lost a majority of their labor force. It was

able to make bilateral trade unions with the Soviet Union that lasted between 1947 and 1991. This

bilateral trade union along with the joining of the Bretton Woods, the International Monetary Fund, the

World Bank, and General Trade Agreement all allowed Finland to join the Western economic

liberalization that was occurring (An Economic History of Finland).

The liberalization of economy also impacted the social aspect of Finland’s society (An Economic

History of Finland). Starting in the 1960s, Finland instituted the Nordic Welfare system, which led to

government-run education that instituted policies such as child cash allowances. A fully funded public

health care system with insurance to cover private health care and increased availability for

unemployment programs were added by the state. These reforms established by the state made Finland

one of the most evenly income distributed nations in the world by the 1980s (An Economic History of

Finland).

Finland’s economy continued to grow in the 1980s, eventually catching up to Sweden’s GDP per

capita (An Economic History of Finland). However, the collapse of the Soviet Union in 1991 created

havoc on Finland’s economy, with the depression that hit Finland during this time was worse for them

than the depression in the 1930s. Finland’s economy was able to bounce back around 1994 and showed

growth in GDP and GDP per capita. However, globalization has had a remarkable effect on the Finnish

economy. In Finland, globalization has impacted the number of foreign investors, which constitutes

roughly 80% of all Finnish companies. Also the growth of the Finnish economy is tied now to the

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European Union and neither is expected to have little or any growth in their economies (An Economic

History of Finland). Even with this little expected growth, Finland’s GDP per capita is $47,386, and is

growing at a rate of 2.9% (Background Note: Finland).

INSTITUTIONS

The most current Finnish Constitution was instituted in May 2000 and later amended in 2012.

This new constitution established a mixed presidential and parliamentary government, where both the

president and prime minister have executive powers (Background Note: Finland). The President is elected

for 6-year terms and his main responsibilities are handling foreign relations, except with the EU, and

directing national security. The Prime Minister and the Council of State are both appointed by the

President with the approval of the Eduskunta, or legislature. The Prime Minister is in charge of relations

with the EU and domestic issues. The Council of State is made up of the Prime Minister and the ministers

for the central government (Background Note: Finland).

The Eduskunta is the ultimate authority in Finland. It is the unicameral, legislative branch that

houses 200 members elected by proportional representation for 4-year terms. The Eduskunta has the

ability to amend the constitution, initiate and pass legislation, disband the council, and override a

presidential veto. Finland’s judicial system uses code law and is separated into civil, criminal, and special

courts. It is also separated into local courts, regional appellate courts, Supreme Court and the Supreme

Administration Court. There is no judicial review in Finland’s judicial system so no act by the Eduskunta

can be considered unconstitutional. However, the President does have the power to veto or halt any

legislation but ultimately the Eduskunta can override the President (Background Note: Finland).

There have been four main political parties in Finland since 1944. However because of the

proportional representation system that is in place, no one party has had a majority so coalition

governments have reigned in Finland (Background Note: Finland). This is seen in the election in 2007

when there was a four party coalition government formed after the election. The Center Party in this

election formed a coalition with the Conservatives, the Green Party, and the Social Democrats, which are

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the four main political parties. A coalition government occurred also after the 2011 election, although this

time it was a six party coalition government (Background Note: Finland).

In the 1990s, corporatism took root in Finnish government and culture. The corporatist model

was first instituted in Finland in the 1970s (Woldendorp). During this time corporatism played out

between the government, trade unions, and employer associations in regard to how deals and negotiations

between the three organizations would happen. Corporatism truly played a part in Finland’s development

in the 1990s with the economic crisis in Finland due to the collapse of the USSR and the effects of the

Gulf War. During this economic crisis, Finland joined the EU and the EMU (European Monetary Union).

In order to pass the pension plan with the EMU, a tripartite agreement was needed. Finland was able to

use their corporatist model to make an agreement that fulfilled the requirements of participation in the

EMU and in which all three parties were able to work together. Finland through these crises followed a

corporatist pattern where the government would initiate policy and the social parties involved would

implement the solution in respect to their parties’ interests(Woldendorp).

POLITICAL CULTURE

Finland is a very homogeneous state; roughly 93.4% of the population is Finn and 82.5% of Finns

considers themselves to be part of the Lutheran Church of Finland. The next largest ethnic group is the

Swedes at 5.6% while the next largest religion is Orthodox Church at 1.1% (Europe: Finland). During the

occupation of Finland by the Swedes there were both ethnic and religious tension between the two

groups. The Swedes brought Catholicism with them when they conquered Finland. As a result of the

Protestant Reformation, Sweden broke with the Catholic Church and Evangelical Lutheranism was

declared as the Church in Finland (History in Brief: Finland). Currently, there are no major tensions

between the Finns and the Swedes within Finland (Background Note: Finland).

Finland’s political culture revolves around working together and compromise. This is seen with

the implementation of corporatism in Finland and its use to pass legislation in order to protect the

economic rights of Finland (Woldendorp). Also, Finland uses the proportional representation system and

it tends to lead to coalition governments in Finland (Background Note: Finland).

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Since Finland was under the domination of Sweden for a long period of time, its political culture

was largely formed in opposition to this domination. For the latter part of the 20th century, Finnish

nationalism and cohesion was promoted. Thus, strong obedience is considered characteristic of Finnish

political culture (Veilahti). In this milieu, civic society was largely absent, especially because of the lack

of focus on individual initiative, and has been more hierarchical, with change deriving from a top-down

approach. Thus, the Finns tend to favor strong, personalized leadership (Ranio and Tiilikainen).

Nevertheless, the Finnish have a strong sense of identity, although this has become weakened as a result

of multiculturalism (Veilahti).

POLITICAL DEVELOPMENT

Towards the end of the fourteenth century, Sweden had consolidated its suzerainty over Finland,

and for the next six hundred years, it maintained its dominance. Yet, Sweden formally ceded Finland to

Russia by the Treaty of Hamina in 1809, although Sweden exerted a predominant influence in Finnish

affairs. (U.S. Library of Congress 4). Although many Finns were satisfied with Russian rule, the 20th

century witnessed the emergence of Finnish nationalism. Even after Russia’s subjugation of Finland, the

Swedish-speaking elite still dominated politics, and Finnish nationalism, or Fennoman, sought to promote

the usage of the Finnish language as a way to distinguish itself from both Russia and Sweden. The latter

counteracted with its own nationalist movement, the Svecoman movement. (U.S. Library of Congress 5)

During World War I, Finland supported Germany, and after the 1917 Russian Revolution, Finland

declared its independence. Yet independence did not hold the promise of peace. Within months after its

declaration of independence, Finland plunged into civil war waged by the conservative Whites and the

more radical Reds. In 1918, a coalition of socialists and liberals proclaimed Finland a republic that would

protect the rights of its citizens. At the same time, extreme Communists, known as the Lapuans, and

nationalist groups sought to make their voice heard. The next year, 1919, women were granted the right to

vote and language parity was established between the Swedes and Finns (U.S. Library of Congress 2).

This period witnessed the creation of the Constitution, composed of four laws. The most important

is the Constitution Act of 1919 in which a parliamentary government was created in which three branches

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of government (legislative, executive, and judicial) were established. However, there is no separation of

powers, so the president shares legislative power with parliament, and the judiciary is bound by the laws

passed by the Eduskunta (parliament). Section II of the Constitution Act proclaims all individuals as

equal under the law, guarantees free speech and assembly, the protection of property, and freedom of

religion. However, a 1972 amendment promises all Finns the right to gainful employment (US Library of

Congress 1).

Finland instituted a new Constitution in May of 2000 that was later amended in 2012

(Background Note: Finland). This new constitution combines four previous acts. These acts are the

Constitution Act of Finland, two acts on ministerial liability, and the Parliament Act (Constitution of

Finland). Throughout Finland’s path toward political development, Finland has been considered to be a

stable democratic regime. According to Freedom House, Finland is considered to be a free state (Finland);

and it is ranked second in the world for least perception of corruption (Corruption by Country / Territory:

Finland).

INCOME INEQUALITY IN FINLAND

Finland is one of the few nations in the world that has been able to achieve a high level of

economic development and political stability without compromising equity (Gini coefficient=.268) ( CIA

World Factbook). Yet, contrary to popular belief, Finland’s class structure inhibited the formation of its

most recent form of egalitarianism. Prior to World War II, and even into the 1980’s, most Finnish heavily

identified with certain class designations. According to the Library of Congress, the interwar period was

characterized by deep schisms among the Finnish along lingual and ethnic lines (Photius). Furthermore,

Finland was still a predominantly agrarian society in which social mobility was largely absent. As such, it

was estimated that prior to the 1980’s, 80% of farmers were the descendants of farmers, and that out of all

of the social classes in Finland, this class was the most entrenched (Photius). Matti Alestalo, a Finnish

sociologist, grouped Finnish society into six distinct classes: farmers, working class, petit bourgeoisie,

lower middle class, upper middle class, and upper class. In 1980, 1% of the population was a member of

the upper class, whereas the working class comprised 50% of the population (Photius).

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Finland’s social welfare system was implemented almost immediately after the post-war period

economic boom and had become comprehensively developed by the end of the 20th century. The first

significant reform was the 1948 cash allowance in which parents were given a cash payment per child.

Subsequent welfare reforms expanded these reforms to free child care, free health care, and

unemployment benefits (Lavery). The expansion of these reforms could perhaps be attributed to Finland’s

transition from “short-term minority governments to long-term majority coalitions.” (Finnish

Government). After the Red Earth Coalition in 1966, successive governments were dedicated to the

maintenance of Finland’s vast welfare system, and social cleavages were attenuated. Moreover, it was

considered in the best interests of both the Left (who desired redistribution policies) and the Right (who

believed that a vast welfare system would enhance social stability) to maintain this system (Lavery). As

GDP per capita increased, so did the percentage of the budget allocated to social spending. In 1950,

Finnish social spending constituted 7% of its GDP, and steadily increased to almost a quarter of its GDP

by 1980 (U.S. Library of Congress 3). In the 1990’s, Finland’s elaborate welfare system, which consisted

of approximately ten programs, became threatened due to a deep recession. However, a study found that

increasing unemployment as a result of the recession did not increase income inequality, and this could be

accredited to the welfare system in place (Riihela). Yet, after 1995, income inequality has increased,

although this increase has been negligible (Riihela). This can be attributable to the increase in property

income, which is concentrated in those Finns located in the top decile (Uusitalo and Kautto).

EDUCATION AND FINLAND’S WELFARE SYSTEM

One of the most prominent hallmarks of Finland’s welfare system is the equalization of

educational opportunity. This is especially remarkable considering Finland’s previously ignoble status as

an agrarian society with little educational prestige as little as fifty years ago (Frassinelli). Moreover, the

right to education is guaranteed in the Constitution of Finland (Finnish National Board of Education).

Presently, almost 100% of Finnish complete basic education, 95% of these students continue to secondary

education, and 90% of these students progress to tertiary education (Sahlberg). Moreover, until 1970,

there was a wide gap between the educational opportunities afforded to certain citizens and this correlated

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with the socio-economic divide extant in Finnish society (Sahlberg). One of the ways in which this divide

was mitigated was through the elimination of streaming, which was a practice in which students of similar

ability were grouped together. Thus, Finland has one of the smallest performance variations in the world,

and the equity established within the schools has in no way hampered its performance on international

performance tests such as the PISA (Sahlberg). In science, 15-year old Finnish students have consistently

outperformed American, Japanese, Australian, and Korean students (Sahlberg).

Reform of the educational system began in the 1970’s. This reform was initiated during 1972-

1977 when Finland’s two-tier system of education was abolished. Initially, there were two schools:

primary school for the plebeians and grammar school for the upper classes. Essentially, the

Comprehensive School Reform combined both systems into a compulsory nine-year program.

(Popkewitz) Moreover, the elimination of streaming also contributed to the dissolution of exams.

Between 1972 and 1982, examinations were eliminated and curricula were standardized, thereby further

expanding access to education (Darling-Hammond). One of the key motivations behind Finland’s push to

reform was World War II. At the end of World War II, Finland was $300 million in debt to the Soviet

Union, which encouraged Finland’s industrialization. This industrialization then encouraged the

development of an educated workforce (Saarivirta).

Even so, in 1950, only a quarter of Finns had access to the grammar schools and most only

received six years of education. In 1956, a commission suggested the idea of a comprehensive school, yet

it was not until 1968, when pressure began to build concerning Finland’s competitiveness, that the

parliament enacted legislation to create the 1972-1977 reforms. The creation of a nine-year compulsory

education increased the likelihood of Finns receiving higher education. In 1970, only 30% of Finnish

students received secondary school education. In addition, academic secondary school has its vocational

counterpart, vocational secondary school, so that students who are not academically inclined can still

receive training at a trade and attend tertiary education in the form of polytechnic colleges, and this rate

almost tripled in the span of forty years (OECD).

STRUCTURE OF THE EDUCATIONAL SYSTEM

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All Finns began school when they are seven years old and schooling is compulsory for nine years.

Regardless of socioeconomic background, all students attend similar schools with highly trained

(obtaining at least a Master's Degree) teachers. In addition to the parity between schools, all students

receive free meals, healthcare, school supplies, and transportation. Children can decide which school,

either public or private, they would like to attend, free of charge, with curricula standardized between

schools (Frassinelli). If a student feels unprepared to either enter the working world or higher education,

an additional year of education is offered (Finnish Board of Education). After the period of compulsory

education has been completed, the Finnish are free to continue their education. The next step in this

process is General Upper Secondary Education, which is generally completed from ages 16-19. In this

period, students must pay for their materials and their matriculation exams. To enter into a university, the

National Matriculation Examination, similar to the SAT, is taken (Frassinelli). Although this open-ended

exam is not required for admission to university, many students nevertheless opt to take these exams.

University education is essentially free of charge, sans fees for materials such as books and membership

fees to student unions, which offer benefits such as reduced meals and health care services (Finnish Board

of Education).

TAXATION AND EDUCATION EXPENDITURES

The population of Finland pays high income taxes, with approximately 54% of Finland’s revenue

derived from taxes. The tax system is progressive, with those earning more income paying a higher

percentage of taxes. There is the income tax rate, which ranges from 6.5-29.75% of income, plus the

municipal tax rate, which ranges from 16.25-21.75%. Corporations also pay taxes, with a tax rate of

24.5%. Finland also taxes capital gains, with companies obligated to pay 24.5%, individuals to pay 30%,

and 32% for any income exceeding 50,000 Euros (Worldwide Tax).

Finland has a dual income tax model in which corporations and capital income are taxed more

lightly than labor income, so as not to stifle investment. This is the result of a 1993 reform in which

earned income (such as pensions, benefits, and wages) were progressively taxed, whereas a flat tax was

imposed on interest and capital gains (Social Europe Journal). Even so, benefits, such as unemployment

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benefits, are taxed less heavily than earned income (Alho). Yet, whatever disparity that may occur from

this dual taxation model is more than compensated for by Finland’s extensive redistributive policies. Most

of social welfare is funded through taxes, and 27.2% of Finland’s GDP is spent on social expenditures

(Ministry of Social Affairs and Health). Moreover, even though many postulate that providing such high-

quality education may prove expensive to the taxpayer, education comprises only 2% of expenditures

compared to the OECD average of 13% (Lieberman, et al). In spite of this average, tertiary education

(university) is completely free for every citizen and funded using taxpayer money (Lankinen).

IMPLEMENTING FINLAND’S SOLUTION IN CHILE

In identifying Finland as the solution country, the issue of actually implementing this solution as

well as the extent to which this solution is realistic, still remains. Can Finland's path to decrease economic

inequality be applicable to Chile? The answer is a resounding yes.

Both Finland and Chile have key, similar characteristics which are pertinent for the application of

the solution. Both states are homogeneous in nature; Finland's ethnic make-up constitutes 93.4% Finn

(Background Note: Finland) while Chile's population is 95.4% White and Mestizo (Background Note:

Chile). Both countries have a similar percentage of the population living in urban cities although Finland

is 1/3 the size of Chile; 85% of Finns (Background Note: Finland) and 89% of Chileans live in urban

areas (Background Note: Chile).

Both countries have a history of colonization as Finland battled the dominance of the Swedish

and the Russians in its cultural identity and internal affairs for six hundred years (14th – 20th century);

while Chile was colonized by Spain for 3 centuries (15th – 18th century)(Background Note: Finland)

(Background Note: Chile) It is important to note that although both countries have undergone a history of

colonization, they are both located in completely different geographic regions and Finland does not share

the same reliance on resources as Chile does with copper (Background Note: Finland). However,

although this is what we believe to be an unsustainable path to economic development in the long run, we

do not solely attribute these factors to the explanation of income inequality. Subsequently, many

developed countries such as the United States and Sweden have very large income gaps between the rich

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and the poor (Popper) and therefore an inference can be drawn that economic development may not be the

complete solution that we are looking for as both countries Chile and Finland are economically

developed. The article states that “The OECD reported that the growing inequality was caused in part by

technological progress, which sends a greater share of national income to workers who are

technologically literate. But it also blamed policy changes in recent decades, such as the lowering of tax

rates for the wealthy and cuts to benefit programs for the poor” (Popper). This accurately describes the

current situation in Chile: the tax rates for the wealthy and corporations are very low or evaded by them

while state funding for institutions such as education or healthcare programs has decreased

significantly(Lopez). As a result, there is unequal access to these institutions across all levels of society.

Therefore, Chile, may very well after all have to think about transforming into a more technological and

industrial society as well as decrease its reliance on copper. Even in comparing the exports of the two

countries; Finland emphasizes more high- tech exports such as mobile phones where-as ¾ of Chile’s

exports are commodities. (Background Note: Chile) (Background Note: Finland). This in itself would not

lead to the decline in inequality, but the process of training the labor force to be equipped with more of

these technical skills and becoming more technologically advanced may start to mold the formation for a

more skilled work-force and thus a higher distribution of income to these once lower-skilled workers. The

article further discusses how to move the lower classes up the economic ladder in order to decrease

inequality.(Popper) Therefore, we believe that the solution of Chile’s issue can be found in Finland’s

education and tax system.

This “educational apartheid” as Mario Waissbluth, a campaigner, puts it, is widely blamed for the

fact that Chile remains a highly unequal society, despite its dramatic progress over the past quarter of a

century in reducing poverty (The Economist). Chile is transitioning into a new society where “people feel

more empowered and they want to be heard” (Barrionuevo) There is a deep and growing discontent

among the lower classes who feel as if they are not a part of the economic, educated elite, and this

discontent fueled the massive student protests and riots that occurred. Chileans are rebelling against

“excessive inequality” in a country that has the highest GDP per capita in Latin America but one of the

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most unequal distributions of wealth (Barrionuevo). In order to decrease income inequality and mobilize

lower class Chileans up the economic ladder, education reform must take place.

Finland’s education system would be a perfect model for Chile to implement. Additionally, with

the ongoing mass protests and deep discontent of the masses, we believe that the Finnish education

system would be widely accepted and easily assimilated into the Chilean culture. Finland underwent

three phases in the development of their education system; enhancing equal educational opportunities by

transforming from an agricultural to an industrial nation (1945-1970), then by creating a public

comprehensive school system using the increase of technological innovation(1965-1990)and lastly by

improving the quality of basic education and expanding higher education(1985-present) (Sahlberg). This

is very applicable in Chile as Finland too went from being an unequal society in the 1950s “where only

those living in larger towns and municipalities had access to grammar or middle schools… and left school

after six or seven years of formal basic education” (Sahlberg) which is what we see occurring in

Chile.There were opportunities to move on to two or three years of vocational/ technical training, but

these opportunities were only found in larger municipalities.

This accurately describes the current situation in Chile. According to the OECD PISA test, which

compares educational attainment across countries, analysis done in Chile of the test results in the 65

countries that took part finds that it ranked 64th in terms of the variance of the results according to social

class. Rich pupils get superb private education; poor ones are condemned to underfunded, dilapidated

state-funded schools(The Economist). To combat this problem, Finland developed the comprehensive

nine-year municipal school where all students regardless of their socio-economic background would

enroll in the same nine year basic school (Sahlberg.)

First, this reform created an environment in which a wide variety of students from different

backgrounds learn in the same schools and classes, which thus required a new approach to teaching and

career guidance. (Sahlberg) There was a sense of unity which developed in Finland: increasingly

everyone believed that “all pupils can learn if they are given proper opportunities and support.”

(Sahlberg)This led to a wide-scale teacher reform in 1979 where teaching was now viewed as an

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esteemed profession with a new focus on professional development, research-based teaching and thus the

modernization of teaching(Sahlberg) This creation of equal opportunities, high quality and high

participation at all levels of Finnish society through complete funding by the government thus making

education free for everyone played a huge role in decreasing Finnish inequality and could play a

significant role in decreasing Chile’s inequality as well if implemented.

Chile’s plan to increase the value of the voucher system for the poorest children and set up 60

lycee- style schools of excellence for bright students in poor families (The Economist) will not revamp

the education system or decrease the inequality but instead exacerbate the issue as seen with the

reservation system in India where creating “special” opportunities for lower classes only further

entrenches already deeply-rooted class distinctions. Hence, the reason why Finland’s comprehensive

education system, where all students despite their socioeconomic background learn in the same classes

but are still accommodated for their special needs through this new creative modernization of teaching

should be implemented in Chile in order to erase class lines and promote equality.However, there is one

piece of the puzzle missing needed to jumpstart this solution, and it is tax reform.

The government of Chile said that it would draw approximately 4 billion dollars from its reserve

fund in copper revenue to pay for better schools. It also stated that they could only afford 40% of the

country’s poorest children (The Economist). Chile has the most privatized educational system in the

world and according to the OECD, nearly 40% of all education spending comes from households in the

form of tuition fees which is the highest of all OECD countries (Basckin). Only 16% of higher education

spending comes from public sources compared with an OECD average of 70% and less than 50% of high

school students go to fully state-funded schools (Basckin).

It follows that in order for the government to provide equal, high quality access to education,

Chile’s regressive tax system would have to be reformed. As mentioned earlier, 54% of Finland’s

revenue is derived from taxes. These taxes are used to fund social welfare and the outstanding educational

system found there (Lopez). Chile’s personal income tax however is progressive, with some individuals

being taxed up to 40% of their income, although this is limited because of many of Chileans’ low wages

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(Azzopardi). On the other hand, the highest tax rate in Finland is 30%, yet it derives more of its revenue

from taxes than Chile.

This gap could be made up by taxing corporations. Currently, these corporations are lightly

taxed(3.2%) and if that were reversed could serve as a significant increase in revenue (Azzopardi). Today,

taxes serve as 19% of Chile’s revenue which is significantly less than the OECD average of 35.8%

(Azzopardi). “Personal income tax for top earners is as high in Chile as in developed countries, but the

gap between the tax rates charged to companies and individuals leads many high-income earners to create

investment companies to reduce their tax burden.” (Azzopardi). Many industries that are environmentally

stringent, such as mining and forestry, do not pay any sort of environmental taxes and most often benefit

from loopholes, so perhaps Chile could impose greater taxes on the mining industry (Azzopardi). Lastly,

many upper-income groups evade their tax because most of the income they earn is not from wages.

Furthermore, 80% of loopholes are related to income tax and benefit the wealthiest 10% of the population

(Azzopardi).

As a result, much of the tax burden (as a result of tax evasion and loopholes) is shifted to lower

and middle income groups through the VAT (value added tax). Therefore Chile needs to crack down on

tax evasion. This current system leaves Chile with a lack of financial resources to spend more money on

education;, thus restricting investments in human capital among the vast majority of the population that

depends on the state to access education (Lopez). Moreover, ordinary citizens are forced to either spend

an enormous share of their income on education and health care in the private sector or to accept the

substandard levels of these services provided by the state (Lopez). At the same time the

underdevelopment of human capital has contributed to restrict the income growth of the poor and middle

income classes and hence income inequality (Lopez).Therefore, if lower classes are not permitted a high

degree of social mobility through decreasing educational inequality through tax reform and thus income

inequality, inequality in Chile will continue to prevail.

Finland’s tax system has played a large role in decreasing income inequality. With a high income

tax system, high corporate taxes combined with the municipal tax rate, Finland has been able to finance

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important social welfare programs which include equal, quality access to education and healthcare as well

as unemployment insurance (Lopez.) If Chile would implement a higher and progressive tax system like

that of Finland, generating more revenue, they could afford to implement higher quality and equal access

to social programs. Chileans will probably still protest being taxed higher but if it does through the

platform of creating universal education it may be easier to assimilate into society without a backlash.

This progressive tax system would also be easier the more Chile develops economically (Azzopardi).

Students have already been protesting the 700 million in funding for tax reform as too little (Long).

Therefore, in order to create more revenue, the government may have to implement a higher progressive

tax rate which may still be unpalatable to many Chileans. Another problem is that many economists

disagree with implementing a progressive tax rate. “There are lots of needs which Chile, as a modest

country cannot finance with taxes” Joseph Ramos- University of Chile (Azzopardi). Klaus Schmidt-

Hebbel, a former Chief Economist at the Paris-based organization believes that introducing a flat tax rate

for companies and individuals would be more feasible and efficient for Chile as well as other OECD

countries (Azzopardi). Consequently, reforming key institutions such as education and government policy

(taxation) in Chile may prove difficult without the backing of its citizenry despite low government

corruption levels, yet it is necessary to decrease inequality.

CONCLUSION

Ultimately, Finland’s model of reducing income inequality through educational reform holds

great promise and applicability for mitigating income inequality in Chile. Although Finland is often

considered an anomaly of perfect equality, its state of low inequality has only been achieved as a result of

a consensus among the political parties of the nations, comprehensive reforms, and vigorous debate over

the merits of these reforms. (Lavery) Like Finland several decades ago, Chile is wrought by social

divisions that has its provenance in colonialism. Moreover, both nations are ethnically homogeneous,

highly developed nations with low levels of corruption, high industrialization, and positive prognoses for

economic development. (Background Note: Chile) (Background Note: Finland) With these favorable

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conditions, Chile’s high level of inequality is not a result of a lack of feasibility, but more so a lack of will

towards the rectification of this problem.

Nevertheless, Chile is beginning to acknowledge the perils of income inequality on its subsequent

economic development, and has recently began to propose some measures seeking to address this issue.

Like Finland, it recognizes that expanding access to education at all levels, particularly the highest levels,

is a necessary reform for not only reducing inequality, but also creating a more educated populace. Thus,

the president of Chile, a billionaire mogul, is now seeking to reform the tax structure to garner additional

revenues that would be allocated towards education.(BBC News) Previously, it would be inconceivable

that a member of the upper class would propose changes to the tax structure, yet this development

indicates that a consensus is developing across all sectors of society concerning the imperative of

educational reform. This same imperative provided the impetus for Finland’s reform, and thus, the biggest

impediment to reform was removed. However, this imperative has not been fully consolidated in Chile,

and the aforementioned tax reforms are virtually certain to face considerable resistance among the elite in

Congress. (Vergara and Quilodran) Despite this observation, it must be acknowledged that reform is

typically gradual, yet feasible. Even so, Chile has to recognize the importance of not only expanding

access to higher level education, but improving the quality of all levels of education. This objective

remains a formidable challenge, yet the future of Chile’s economy, and its democracy, depends on its

provision of this necessary element to maintaining a vibrant democracy.

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Appendix Economic Inequality in ChileI. Problem: Persistently High Levels of Income Inequality in Chile

A. Chile is the first and only Latin American nation to become a member of the Organization of Economic Cooperation and Development (OECD) and has been ranked as the 7th freest economy in the world. Moreover, its GDP per capita, estimated at $15,000, is comparable to that of a developed nation.B. Its economic development began in the 1980’s during the Pinochet Era and continued during Chile’s democratization.C. Despite its impressive economic profile, Chile is ranked 17th in the world in regards to level of economic inequality.D. Chile has a Gini coefficient, which is an economic indicator rated as a percentage from 1-100 that measures the extent of economic inequality within a particular country, of 52.1%.E. Because of this inequality, the benefits that have accrued as a result of Chile’s relatively high growth rate of 5% have not been evenly distributed throughout the population.

II. History of the ProblemA. Chile was colonized by Spain in 1540, and this colonization sowed the roots of Chile’s high levels of inequality.B. During Chile’s colonization, the presence of a dual society began to emerge that was comprised of the wealthy, ruling class supported by the monarchy juxtaposed with the peasantry. This gap persisted even after Chile won its independence from Spain in 1818.C. Between the 1920’s and 1930;s, the government vacillated between democratic and authoritarian regimes, some of which tried to redistribute the wealth.D. In 1970, Salvador Allende, Chile’s first Socialist president, was elected and established redistributive policies and nationalized the copper industry.

III. Current SituationA. In the beginning of 2011, the Chilean economy grew by 8.5%, with 75% of that growth distributed to 10% of the population.B. The exclusivity of education and health care greatly contributes to this inequality. Education is very expensive, which excludes those who cannot afford the tuition.C. In regards to health care, Chile’s health care is separated into two tranches: An expensive, privatized health care system and the inexpensive health care reserved for the masses of the population. The latter system does not cover a majority of diseases, and suffers from extreme delay and unreliability.

IV. Current PoliciesA. In 2006, Chile allocated 3.2% of government spending on education and increased this allocation to 4% in 2008B. These funds have been utilized to implement standardized testing and extend the school dayC. The Chilean government has also established Chile Solidario, which provides financial assistance to impoverished households, and Chile Crece Contigo, which helps children from conception to pre-school age.

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V. Economic DevelopmentA. Agriculture was the main economic activity during the colonial period, but after independence copper became the main export. B. Chile sought to insulate itself from the vagaries of the international market through import substitution industrialization. Initially, this led to high rates of growth, though growth declined after 1950.C. In 1970, Salvador Allende instituted a series of economic reforms that resulted in increased inflation, debt, and labor strikes.D. On September 11, 1973, a coup toppled the government and led to Pinochet coming to power. His economic reforms, designed by the “Chicago Boys”, led to the liberalization of its economy, the dismantling of trade restrictions, and the free flow of capital.F. These reforms continued after Chile’s democratization. G. Chile currently has a GDP growth rate of 6.5%, a decreasing unemployment rate, and a rising GDP per capita.

VI. Political CultureA. Chile’s political stability has generated a growing sense of political apathy, with a third of all respondents in a 2001 survey stating that they did not care whether their political system was democratic or authoritarian.B. Traditionally, the government forced Chileans to vote in elections, but in 2010, a law was passed which automatically registered all Chileans over 18 and making voting voluntary.C. Parties have become depoliticized, which is a result of economic development and Chileans’ fear of the anarchy that preceded Chile’s descent into dictatorship.

VII. Political Institutions and DevelopmentA. Chile had a colonial-era Constitution which was highly exclusive and restricted suffrage.B. Its current constitution has separation of powers and three branches of government.C. A 1988 plebiscite which ended Pinochet’s rule sought to democratize Chile’s institutions.D. It is the only nation in the world with a binomial system of representation.

VIII. CorporatismA. The main interest groups incorporated into the government are the military, which has declined in influence, the Catholic Church, and the business sector, both of which retain considerable influence.

IX. Ethnic ConflictA. Chile is one of the most homogenous nations in the world, with over 95% of the population classifying itself as either white or MestizoB. The Mapuche comprise 4% of the population and are Chile’s largest indigenous group. They are currently in conflict with the government over the encroachment of multinational corporations into their territory.

X. Characteristics of the Solution StateA. The characteristics in which the solution state must be similar in regard to Chile are colonial legacy/development, geography, government and religion, demographics, and economic statistics.

XI. ConclusionA. Even though Chile is one of the most developed nations in South America, it is plagued by a high level of inequality that is rooted in Chile’s colonial history.B. Presently, Chile has programs such as Chile Crece Contigo that seek to mitigate social i

inequality that could perhaps be expanded to include all sectors of society, although this would be difficult in a conservative, socially stratified society.

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