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The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, and Peru: A Synthesis of Results

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  • Nora Lustig, George Gray-Molina, Sean Higgins, Miguel Jaramillo, Wilson Jiménez, Veronica Paz, Claudiney Pereira, Carola Pessino, John Scott, and Ernesto Yañez

Abstract

We apply a standard tax-and-benefit-incidence analysis to estimate the impact on inequality and poverty of direct taxes, indirect taxes and subsidies, and social spending (cash and food transfers and in-kind transfers in education and health). The extent of inequality reduction induced by direct taxes and transfers is rather small (2 percentage points on average), especially when compared with that found in Western Europe (15 percentage points on average). What prevents Argentina, Bolivia, and Brazil from achieving similar reductions in inequality is not the lack of revenues but the fact that they spend less on cash transfers—especially transfers that are prog ressive in absolute terms—as a share of GDP. Indirect taxes result in that net contributors to the fiscal system start at the fourth, third, and even second decile on average, depending on the country. When in-kind transfers in education and health are added, however, the bottom six deciles are net recipients. The impact of transfers on inequality and poverty reduction could be higher if spending on direct cash transfers that are progressive in absolute terms were increased, leakages to the nonpoor reduced, and coverage of the extreme poor by direct transfer programs expanded.

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Bibliographic Info

Paper provided by Center for Global Development in its series Working Papers with number 311.

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Length: 28 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:cgd:wpaper:311

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Related research

Keywords: fiscal incidence; inequality; poverty; taxes; social spending; Latin America;

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References

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  1. Breceda, Karla & Rigolini, Jamele & Saavedra, Jaime, 2008. "Latin America and the social contract : patterns of social spending and taxation," Policy Research Working Paper Series 4604, The World Bank.
  2. Herwig Immervoll & Horacio Levy & José Ricardo Nogueira & Cathal O´Donoghue & Rozane Bezerra de Siqueira, 2005. "The Impact of Brazil´s Tax-Benefit System on Inequality and Poverty," Ibero America Institute for Econ. Research (IAI) Discussion Papers 117, Ibero-America Institute for Economic Research.
  3. Ferreira, Francisco H.G. & Ravallion, Martin, 2008. "Global poverty and inequality : a review of the evidence," Policy Research Working Paper Series 4623, The World Bank.
  4. Lambert, Peter J, 1985. "On the Redistributive Effect of Taxes and Benefits," Scottish Journal of Political Economy, Scottish Economic Society, vol. 32(1), pages 39-54, February.
  5. Owen O'Donnell & Eddy van Doorslaer & Adam Wagstaff & Magnus Lindelow, 2008. "Analyzing Health Equity Using Household Survey Data : A Guide to Techniques and Their Implementation," World Bank Publications, The World Bank, number 6896, July.
  6. Andrew Barnard, 2009. "The effects of taxes and benefits on household income, 2007/08," Economic and Labour Market Review, Palgrave Macmillan, vol. 3(8), pages 56-66, August.
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Citations

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Cited by:
  1. Sean Higgins & Nora Lustig & Whitney Ruble & Timothy Smeeding, 2013. "Comparing the incidence of taxes and social spending in Brazil and the United States," Working Papers 316, ECINEQ, Society for the Study of Economic Inequality.
  2. Marisa Bucheli & Nora Lustig & Maximo Rossi & Florencia Amabile, 2012. "Social Spending, Taxes and Income Redistribution in Uruguay," Working Papers 1217, Tulane University, Department of Economics.
  3. Nora Lustig & Carola Pessino, 2013. "Social Spending and Income Redistribution in Argentina during the 2000s: The Rising Role of Noncontributory Pensions," Commitment to Equity (CEQ) Working Paper Series 1305, Tulane University, Department of Economics.
  4. Nancy Birdsall, Nora Lustig, Christian Meyer, 2013. "The Strugglers: The New Poor in Latin America?-Working Paper 337," Working Papers 337, Center for Global Development.
  5. Nora Lustig & Carola Pessino & John Scott, 2013. "The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: An Overview," Working Papers 1313, Tulane University, Department of Economics.
  6. Luis Huesca & Abdelkrim Araar, 2014. "Progressivity of Taxes and Transfers: the Mexican Case 2012," Cahiers de recherche 1407, CIRPEE.
  7. Sean Higgins, Nora Lustig, Whitney Ruble, and Timothy Smeeding, 2014. "Comparing the Incidence of Taxes and Social Spending in Brazil and the United States - Working Paper 360," Working Papers 360, Center for Global Development.

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