Inequality in Latin America has declined significantly since 2000. This decline is widespread across countries with high and low growth, left- and non-left governments, and commodity exporters and importers. The decline is largely due to falling inequality in hourly wages, more progressive transfers, and lower dependency ratios. Cash transfers have significantly reduced poverty in some countries but have small effects in others that spend little on such programs. While fiscal policy is redistributive in the region, some countries like Mexico redistribute less than peers through their tax and transfer systems.

2. Inequality in Latin America is high…
…but declining since around 2000
Decline is pervasive and significant
• Larger than the rise in inequality in 1990s
• Important contribution to the decline in
poverty
• In countries with high growth & low growth
• In countries with left and nonleft
governments
• In commodity exporters and importers
2

3. LATAM IS THE MOST UNEQUAL REGION IN
THE WORLD
Gini Coefficient by Region (in %), 2004
(Ferreira and Ravallion, 2008)
32.2
33.6
38.9 38.9 39.1
44.7
53.2
60.0
55.0
50.0
45.0
40.0
35.0
30.0
25.0
20.0
High Income Europe and
Central Asia
South Asia North Africa
and the
Middle East
East Asia and
the Pacific
Sub-Saharan
Africa
Latin America
and the
Caribbean
Gini coefficient
3

4. Latin America: Declining income
inequality by country: 2000-2011
(Annual Change of Gini in %)
-2.05-1.99
-2.64
-0.91
-1.30-1.24-1.17-1.07-1.03
-0.47-0.39
-0.79-0.74-0.72
-0.20-0.10
0.61
-0.95
2.12
0.82 0.77
0.40
3.00
2.00
1.00
0.00
-1.00
-2.00
-3.00
Nicaragua
Bolivia
Ecuador
Argentina
El Salvador
Mexico
Venezuela
Brazil
Peru
Dom. Rep.
Panama
Chile
Costa Rica
Paraguay
Uruguay
Guatemala
Honduras
LAC-17
China
South Africa
India
USA
4

5. Decomposing the change in poverty
in the 2000s: growth vs.
redistribution
(Datt-Ravallion Decomp Method)
-6.2
Growth Redistribution Change in poverty ($2.5 a day) during the 2000s*
-12.4 -12.3
-4.8 -6.6
-12.1
-7.8 -6.1
-12.6 -10.7
-6.2
140%
90%
40%
-10%
-60%
Argentina Bolivia Brazil Chile Costa Rica Ecuador Honduras Mexico Panama Peru Paraguay
5

6. • Determinants:
–Declining inequality of hourly
labor income
–Larger and more progressive
transfers
–Lower dependency ratios
6

7. Decomposing Decline in Inequality
Labor (red); Transfers (Green);
Demog (Blue) (Azevedo et al. 2012)
100%
80%
60%
40%
20%
0%
Argen na
-20%
-40%
-60%
-80%
Brazil
Chile
Colombia
Costa Rica
Dominican Rep.
El Salvador
Ecuador
Honduras
Mexico
Panama
Paraguay
Peru
Uruguay
LAC-14
7

8. Changes in returns to education: 2000-2010
(vis a vis incomplete primary or no education)
-1.49
-1.31
-1.23
-1.22
-1.16
-1.07
-0.91
-0.90 -0.72 -0.71 -0.66 -0.64 -0.51 -0.42
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
-10.0
-12.0
Ecuador
Argentina
El Salvador
Venezuela
Mexico
Brazil
Dominican Rep.
Panama
Paraguay
Peru
Chile
Bolivia
Nicaragua
Costa Rica
Change in Gini Change in returns on primary schooling
Change in returns on secondary schooling Change in returns on tertiary schooling

9. Determinants of declining inequality
in hourly labor earnings
Decline in returns to post-secondary
education (skill premium)
• Supply
• Demand
• Pro-active Labor Policies
• Lower quality of post-secondary
education
9

10. Wage Premium: Supply (blue) vs
Demand (demand)
Supply Demand
2000s 2000s (σ=2) 2000s (σ=3)
Argentina 2.4 -2.3 -4.7
Bolivia 5.1 -4.1 -8.7
Brazil 4.4 -1.9 -5.1
Chile 1.1 -2.7 -4.7
Colombia 6.0 2.1 0.1
Costa Rica 3.4 3.0 2.8
Ecuador 3.4 -3.0 -6.3
El Salvador -0.3 -0.4 -0.5
Honduras 2.3 -1.4 -3.3
Mexico 2.2 -3.5 -6.3
Nicaragua 6.6 -7.2 -14.1
Panama 2.4 -2.2 -4.4
Paraguay 6.1 -5.2 -10.8
Peru 3.8 -1.8 -4.6
Uruguay 1.1 -0.6 -1.4
Venezuela 4.2 -5.4 -10.3
Mean 3.4 -2.3 -5.1
Source: Gasparini et al., 2011

11. Argentina, Brazil and Mexico
• Argentina:
– High growth due to post-2002 recovery
– Devaluation in early 2000s => increase in relative demand of low-skilled
workers
– Very pro-active labor market policies
• Brazil:
– Low growth during most of the period
– Increase in relative supply of skilled workers
– Increase in relative demand of low-skilled workers
– Pro-active labor market policies
• Mexico:
– low growth
– Increase in relative supply of skilled workers
– No pro-active labor market policies
11

12. How redistributive are Latin
American governments?
• Decomposition of changes in inequality by income
source show that transfers is, on average, the second
most important proximate determinant of decline in
overall inequality
• Benefit and tax incidence analysis for 12 countries
• www.commitmentoequity.org
12

13. Commitment to Equity (CEQ), joint project of Tulane
University and Inter-American Dialogue.
www.commitmentoequity.org
13

14. Size of States
(Primary and Social Spending as % of
GDP)
14

15. Fiscal Policy and Inequality
Gini Coefficient by Income Concept
15
0.59
0.57
0.55
0.53
0.51
0.49
0.47
0.45
0.43
0.41
0.39
Market
Income
Net Market
Income
Disposable
Income
Post-Fiscal
Income
Final Income
Bolivia
Brazil
Chile
Colombia
Costa Rica
Guatemala
Mexico
Paraguay
Peru
Uruguay

16. Fiscal Policy and Inequality
(Gini before and after direct taxes and cash transfers
2009 or 2010)
16
0.57
0.55
0.53
0.51
0.49
0.47
0.45
Market Income After Direct Taxes After Direct Taxes&Transf
Bolivia
Brazil
Chile
Colombia
Costa Rica
Guatemala
Mexico
Paraguay
Peru
Uruguay

17. Inequality Reduction by Direct Taxes and
Transfers: Brazil, Europe and US
0
-0.02
-0.04
-0.06
-0.08
-0.1
-0.12
-0.14
-0.16
-0.18
Brazil
Greece
United States
Italy
Portugal
Spain
Netherlands
France
Austria
Germany
Sweden
Luxembourg
Belgium
UK
Finland
Denmark
Ireland
Change between Market and Disposable Income Ginis
Source: Higgins et al. (2013) for Brazil and US;
Immervoll et al. (2009) for Europe 17

18. Cash Transfers and Poverty
• Cash transfers reduce extreme
poverty by more than 60 percent in
Uruguay and Argentina…
….but only by 7 percent in Peru, which
spends too little on cash transfers to
achieve much poverty reduction
18

19. Headcount: Before and After
Cash Transfers
19
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
Net Market Income Disposable Income
Argen na
Bolivia
Brazil
Mexico
Peru
Uruguay

20. Poverty after Consumption Taxes
(Headcount with US$2.50ppp/day)
20
32.0%
30.0%
28.0%
26.0%
24.0%
22.0%
20.0%
Market Income Net Market
Income
Disposable
Income
Post-Fiscal
Income
Brazil (2009)
Mexico (2010)
Peru (2009)

21. 21
Argen na-Reduc on in Poverty: Market (blue) vs.
110%
Redistribu on (red)
12%
-10%
88%
2003-06 2006-09
Redistribu on
Market

22. Mexico: Social SpendingInequality
Reduction 1996 and 2010
22
0.52
0.52
0.49
0.50
0.49
0.45
0.54
0.52
0.5
0.48
0.46
0.44
0.42
Net Market Income Disposable Income Final Income
Gini
1996
2010

23. Mexico still less redistributive
than peers
23
0.600
0.550
0.500
0.450
0.400
0.350
Net Market
Income
Disposable
Income
Post-Fiscal
Income
Final
Income
Brazil (2009)
Mexico (2010)
Uruguay (2009)

24. Thank you!
24