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The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay

Listed author(s):
  • Nora Lustig

    ()

    (Department of Economics, Stone Center for Latin American Studies and Center for Inter-American Policy and Research (CIPR), Tulane University, New Orleans, LA, USA)

  • Carola Pessino

    (Department of Economics, Universidad del CEMA, Buenos Aires, Argentina)

  • John Scott

    (Department of Economics, Centro de Investigación y Docencia Económicas (CIDE), Mexico City, Mexico)

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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File URL: http://pfr.sagepub.com/content/42/3/287.abstract
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Article provided by in its journal Public Finance Review.

Volume (Year): 42 (2014)
Issue (Month): 3 (May)
Pages: 287-303

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Handle: RePEc:sae:pubfin:v:42:y:2014:i:3:p:287-303
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  1. Lustig, Nora & Lopez-Calva, Luis F. & Ortiz-Juarez, Eduardo, 2013. "Declining Inequality in Latin America in the 2000s: The Cases of Argentina, Brazil, and Mexico," World Development, Elsevier, vol. 44(C), pages 129-141.
  2. Marisa Bucheli & Nora Lustig & Máximo Rossi & Florencia Amábile, 2014. "Social Spending, Taxes, and Income Redistribution in Uruguay," Public Finance Review, , vol. 42(3), pages 413-433, May.
  3. Vito Tanzi, 2013. "Tax reform in Latin America: a long term assessment," Commitment to Equity (CEQ) Working Paper Series 15, Tulane University, Department of Economics.
  4. 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.
  5. 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.
  6. Sean Higgins & Claudiney Pereira, 2013. "The effects of Brazil's high taxation and social spending on the distribution of household income," Commitment to Equity (CEQ) Working Paper Series 07, Tulane University, Department of Economics, revised May 2013.
  7. Nora Lustig & Sean Higgins, 2012. "Fiscal Incidence, Fiscal Mobility and the Poor: A New Approach," Working Papers 1202, Tulane University, Department of Economics.
  8. John Scott, 2013. "Redistributive Impact and Efficiency of Mexico's Fiscal System," Commitment to Equity (CEQ) Working Paper Series 08, Tulane University, Department of Economics, revised Jul 2013.
  9. Sean Higgins & Nora Lustig, 2013. "Measuring Impoverishment: An Overlooked Dimension of Fiscal Incidence," Working Papers 1315, Tulane University, Department of Economics.
  10. 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, December.
  11. Nora Lustig & Carola Pessino, 2013. "Social spending and income redistribution in Argentina during the 2000s: The rising noncontributory pensions," Commitment to Equity (CEQ) Working Paper Series 05, Tulane University, Department of Economics, revised Aug 2013.
  12. Facundo Alveredo & Juliana Londoño Vélez, 2013. "High incomes and personal taxation in a developing economy: Colombia 1993-2010," Commitment to Equity (CEQ) Working Paper Series 1312, Tulane University, Department of Economics.
  13. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
  14. Sean Higgins & Claudiney Pereira, 2013. "The effects of Brazil's high taxation and social spending on the distribution of household income," Commitment to Equity (CEQ) Working Paper Series 1307, Tulane University, Department of Economics, revised May 2013.
  15. Nora Lustig & Carola Pessino, 2013. "Social spending and income redistribution in Argentina during the 2000s: The rising noncontributory pensions," Commitment to Equity (CEQ) Working Paper Series 1305, Tulane University, Department of Economics, revised Aug 2013.
  16. Miguel Jaramillo Baanante, 2013. "The Incidence of Social Spending and Taxes in Peru," Commitment to Equity (CEQ) Working Paper Series 09, Tulane University, Department of Economics.
  17. 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
    [La movilidad económica y el crecimiento de la clase media en América Latina]
    ," World Bank Publications, The World Bank, number 11858, December.
  18. Sean Higgins & Claudiney Pereira, 2014. "The Effects of Brazil’s Taxation and Social Spending on the Distribution of Household Income," Public Finance Review, , vol. 42(3), pages 346-367, May.
  19. Adam Wagstaff, 2012. "Benefit‐incidence analysis: are government health expenditures more pro‐rich than we think?," Health Economics, John Wiley & Sons, Ltd., vol. 21(4), pages 351-366, April.
  20. Sean Higgins & Nora Lustig & Julio Ramirez & William Swanson, 2013. "Social Spending, taxes and income redistribution in Paraguay," Commitment to Equity (CEQ) Working Paper Series 1311, Tulane University, Department of Economics.
  21. John Scott, 2013. "Redistributive Impact and Efficiency of Mexico's Fiscal System," Commitment to Equity (CEQ) Working Paper Series 1308, Tulane University, Department of Economics, revised Jul 2013.
  22. Verónica Paz Arauco & George Gray Molina & Wilson Jiménez Pozo & Ernesto Yáñez Aguilar, 2012. "Explaining low redistributive impact in Bolivia," Commitment to Equity (CEQ) Working Paper Series 1306, Tulane University, Department of Economics, revised Apr 2013.
  23. repec:tul:ceqwps:1314 is not listed on IDEAS
  24. Vito Tanzi, 2013. "Tax reform in Latin America: a long term assessment," Commitment to Equity (CEQ) Working Paper Series 1315, Tulane University, Department of Economics.
  25. Miguel Jaramillo, 2014. "The Incidence of Social Spending and Taxes in Peru," Public Finance Review, SAGE Publishing, vol. 42(3), pages 391-412, May.
  26. Verónica Paz Arauco & George Gray Molina & Wilson Jiménez Pozo & Ernesto Yáñez Aguilar, 2012. "Explaining low redistributive impact in Bolivia," Commitment to Equity (CEQ) Working Paper Series 06, Tulane University, Department of Economics, revised Apr 2013.
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