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Latin America and the social contract : patterns of social spending and taxation

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  • Breceda, Karla
  • Rigolini, Jamele
  • Saavedra, Jaime

Abstract

This paper presents an incidence analysis of both social spending and taxation for seven Latin American countries, the United Kingdom, and the United States. The analysis shows that Latin American countries are headed de facto toward a minimalist welfare state similar to the one in the United States, rather than toward a stronger, European-like welfare state. Specifically, both in Latin America and in the United States, social spending remains fairly flat across income quintiles. On the taxation side, high income inequality causes the rich tobear most of the taxation burden. This causes a vicious cycle where the rich oppose the expansion of the welfare state (as they bear most of its burden without receiving much back), which in turn maintains long-term inequalities. The recent increased socioeconomic instability in many Latin American countries shows nonetheless a real need for a stronger welfare state, which, if unanswered, may degenerate into short-term and unsustainable policies. The case of Chile suggests that a way out from this apparent dead end can be found, as elites may be willing to raise their contribution to social spending if this can lead to a more stable social contract.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4604.

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Date of creation: 01 Apr 2008
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Handle: RePEc:wbk:wbrwps:4604

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Keywords: ; Public Sector Economics&Finance; Taxation&Subsidies; Economic Theory&Research; Services&Transfers to Poor;

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Cited by:
  1. 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, Tulane University, Department of Economics 1313, Tulane University, Department of Economics.
  2. 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, Center for Global Development 311, Center for Global Development.
  3. Barrientos, Armando, 2011. "On the Distributional Implications of Social Protection Reforms in Latin America," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  4. Goñi, Edwin & Humberto López, J. & Servén, Luis, 2011. "Fiscal Redistribution and Income Inequality in Latin America," World Development, Elsevier, Elsevier, vol. 39(9), pages 1558-1569, September.
  5. Nora Lustig, 2011. "Fiscal policy and income redistribution in Latin America: Challenging the conventional wisdom," Working Papers 227, ECINEQ, Society for the Study of Economic Inequality.
  6. World Bank, 2010. "Uruguay - Equality of Opportunity : Achievements and Challenges," World Bank Other Operational Studies 2985, The World Bank.
  7. Nora Lustig, 2011. "Commitment to Equity Assessment (CEQ) A Diagnostic Framework to Assess Governments' Fiscal Policies Handbook," Working Papers, Tulane University, Department of Economics 1119, Tulane University, Department of Economics.
  8. Roberto Dell’Anno, 2010. "Institutions and human development in the Latin American informal economy," Constitutional Political Economy, Springer, Springer, vol. 21(3), pages 207-230, September.
  9. Cornia, Giovanni Andrea & Martorano, Bruno, 2011. "A New Fiscal Pact, Tax Policy Changes and Income Inequality," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  10. Cuesta, Jose & Kabaso, Pamela & Suarez-Becerra, Pablo, 2012. "How pro-poor and progressive is social spending in Zambia ?," Policy Research Working Paper Series 6052, The World Bank.

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