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The impact of taxes and social spending on inequality and poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: An overview

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Author Info

  • Nora Lustig

    (Tulane University and Center for Global Development and Inter-American Dialogue.)

  • Florencia Amábile

    (Affilitation available at www.commitmentoequity.org)

  • Marisa Bucheli

    (Affilitation available at www.commitmentoequity.org)

  • George Gray Molina

    (Affilitation available at www.commitmentoequity.org)

  • Sean Higgins

    (Affilitation available at www.commitmentoequity.org)

  • Miguel Jaramillo

    (Affilitation available at www.commitmentoequity.org)

  • Wilson Jiménez Pozo

    (Affilitation available at www.commitmentoequity.org)

  • Veronica Paz Arauco

    (Affilitation available at www.commitmentoequity.org)

  • Claudiney Pereira

    (Affilitation available at www.commitmentoequity.org)

  • Carola Pessino

    (Affilitation available at www.commitmentoequity.org)

  • Máximo Rossi

    (Affilitation available at www.commitmentoequity.org)

  • John Scott

    (Affilitation available at www.commitmentoequity.org)

  • Ernesto Yáñez Aguilar

    (Affilitation available at www.commitmentoequity.org)

Abstract

How much redistribution and poverty reduction is being accomplished in Latin America through social spending, subsidies, and taxes? Standard fiscal incidence analyses applied to Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay using a comparable methodology yields the following results. Direct taxes and cash transfers reduce inequality and poverty by nontrivial amounts in Argentina, Brazil, and Uruguay but less so in Bolivia, Mexico, and Peru. While direct taxes are progressive, the redistributive impact is small because direct taxes as a share of GDP are generally low. Cash transfers are quite progressive in absolute terms, except in Bolivia where programs are not targeted to the poor. In Bolivia and Brazil, indirect taxes more than offset the poverty-reducing impact of cash transfers. When one includes the in-kind transfers in education and health, valued at government costs, they reduce inequality in all countries by considerably more than cash transfers, reflecting their relative size.

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Bibliographic Info

Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 315.

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Length: 30 pages
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2013-315

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

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References

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  1. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
  2. Francisco H.G. Ferreira & Julian Messina & Jamele Rigolini & Luis-Felipe López-Calva & Maria Ana Lugo & Renos Vakis, 2013. "Economic Mobility and the Rise of the Latin American Middle Class," World Bank Publications, The World Bank, number 11858, October.
  3. Wagstaff, Adam, 2010. "Benefit incidence analysis : are government health expenditures more pro-rich than we think ?," Policy Research Working Paper Series 5234, The World Bank.
  4. Nora Lustig & Carola Pessino, 2012. "Social Spending and Income Redistribution in Argentina During the 2000s: the Rising Role of Noncontributory Pensions," Working Papers 1221, Tulane University, Department of Economics.
  5. 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.
  6. Nora Lustig & Luis F. Lopez-Calva & Eduardo Ortiz-Juarez, 2012. "Declining Inequality in Latin America in the 2000s: The Cases of Argentina, Brazil, and Mexico," Working Papers 1218, Tulane University, Department of Economics.
  7. 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.
  8. Sean Higgins & Nora Lustig & Julio Ramirez & Billy Swanson, 2013. "Social Spending, Taxes and Income Redistribution in Paraguay," Working Papers 1311, Tulane University, Department of Economics.
  9. Nora Lustig, George Gray-Molina, Sean Higgins, Miguel Jaramillo, Wilson Jiménez, Veronica Paz, Claudiney Pereira, Carola Pessino, John Scott, and Ernesto Yañez, 2012. "The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, and Peru: A Synthesis of Results," Working Papers 311, Center for Global Development.
  10. 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).
  11. 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.
  12. Jorge Martinez-Vazquez, 2001. "The Impact of Budgets on the Poor: Tax and Benefit," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0110, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  13. 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, October.
  14. Nora Lustig & Sean Higgins, 2012. "Commitment to Equity Assessment (CEQ): Estimating the Incidence of Social Spending, Subsidies and Taxes Handbook," Working Papers 1219, Tulane University, Department of Economics.
  15. Blanca Moreno-Dodson & Quentin Wodon, 2008. "Public Finance for Poverty Reduction : Concepts and Case Studies from Africa and Latin America," World Bank Publications, The World Bank, number 6881, October.
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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. Marisa Bucheli & Nora Lustig & Maximo Rossi & Florencia Amábile, 2012. "Social Spending, Taxes and Income Redistribution in Uruguay," Working Papers 263, ECINEQ, Society for the Study of Economic Inequality.
  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 316, ECINEQ, Society for the Study of Economic Inequality.
  5. Arjan de Haan, 2013. "The Social Policies of Emerging Economies: Growth and Welfare in China and India," Working Papers 110, International Policy Centre for Inclusive Growth.
  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.
  7. Arjan de Haan, 2013. "Why Emerging Economies Need Social Policy: the Cases of China and India," One Pager 201, International Policy Centre for Inclusive Growth.

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