Subsidies in Chilean Public Utilities1

Telecommunications, for providing data and their time for interviews. I also thank Andrés Gómez –Lobo for pointing to very useful literature. This article was written for the World Bank Institute, but it does not necessarily reflect the views and policies of the Bank. 2 Centro de Economía Aplicada, Departamento de Ingeniería Industrial, Universidad de Chile. 2Subsidies in Chilean Public Utilities This paper makes an analysis of subsidies in Chile’s public utilities. Rates rebalancing have practically eliminated cross subsidies, and current programs are funded from the national budget. Over the last decade in particular, significant efforts have been made to extend public services to rural populations, and a consumption subsidy for potable water currently benefits 17 % of the population. The Chilean experience shows it is possible to design subsidies targeted to the poor that do not cause deadweight losses, and at relatively low cost to the State. The elimination of cross subsidies has facilitated competition in some public services. Moreover, putting rural infrastructure projects out to public tender, whenever possible, has made it possible to substantially reduce government expenditure 1