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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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Author Info

  • Nora Lustig

    (Tulane University and CGD and IAD)

  • George Gray-Molina

    (UNDP, New York, USA)

  • Sean Higgins

    (Tulane University)

  • Miguel Jaramillo

    (GRADE, Lima, Peru)

  • Wilson Jiménez

    (Instituto Alternativo, La Paz; Bolivia)

  • Veronica Paz

    (Instituto Alternativo, La Paz; Bolivia)

  • Claudiney Pereira

    (Tulane University)

  • Carola Pessino

    (CGD, Washington, DC and CEMA, Buenos Aires, Argentin)

  • John Scott

    (CIDE and CONEVAL, Mexico City, Mexico)

  • Ernesto Yañez

    (Instituto Alternativo, La Paz; Bolivia)

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 progressive 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 is increased, leakages to the nonpoor are reduced and coverage of the extreme poor by direct transfer programs is expanded.

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Bibliographic Info

Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 264.

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Length: 28 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2012-264

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

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References

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  1. 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.
  2. Karla Breceda & Jamele Rigolini & Jaime Saavedra, 2009. "Latin America and the Social Contract: Patterns of Social Spending and Taxation," Population and Development Review, The Population Council, Inc., vol. 35(4), pages 721-748.
  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. 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, January.
  5. 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.
  6. Immervoll, Herwig & Levy, Horacio & Nogueira, José Ricardo & O'Donoghue, Cathal & Siqueira, Rozane Bezerra de, 2006. "The Impact of Brazil's Tax-Benefit System on Inequality and Poverty," IZA Discussion Papers 2114, Institute for the Study of Labor (IZA).
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Cited by:
  1. Nora Lustig & Carola Pessino, 2012. "Social Spending and Income Redistribution in Argentina During the 2000s: the Rising Role of Noncontributory Pensions," CEMA Working Papers: Serie Documentos de Trabajo. 499, Universidad del CEMA.
  2. Bucheli, Marisa & Lustig, Nora & Rossi, Maximo & Amabile, Florencia, 2013. "Social spending, taxes and income redistribution in Uruguay," Policy Research Working Paper Series 6380, The World Bank.
  3. 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.
  4. 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 1317, Tulane University, Department of Economics.
  5. Luis Huesca & Abdelkrim Araar, 2014. "Progressivity of Taxes and Transfers: the Mexican Case 2012," Cahiers de recherche 1407, CIRPEE.
  6. 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.

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