Policies for Reducing Income Inequality: Latin America During the Last Decade

In most Latin American countries, income inequality rose steadily during the 1980s and 1990s, and declined from 2002 to 2007. This paper analyzes the factors that could explain the changes in income inequality from 1990 to 2007, by focusing on external shocks and changes in domestic policies. Particular reference will be made to macroeconomic, educational and social policies introduced during recent years, and to the impact of the election of an increasing number of leftof- centre governments which have come to power during the last decade. The paper tests econometrically the importance of all these factors on data for 18 countries from 1990 to 2007. On the basis of this model, the paper estimates the income inequality level for the crisis years 2008 and 2009. The results suggest that a continuation of fiscally prudent distributive and redistributive policies, which have emerged in much of the region in the 2000s, should preserve most of the income inequality gains recorded in recent years.