The Impact of Taxes and Social Spending on Inequality and Poverty in Latin America: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Peru, and Uruguay (Spanish) - Working Paper 427

Using standard fiscal incidence analysis, this paper estimates the impact of fiscal policy on inequality and poverty in thirteen countries in Latin America around 2010. Argentina, Brazil, Chile, Costa Rica and Uruguay are the countries which redistribute the most and El Salvador, Guatemala and Honduras redistribute the least. Contributory pensions are significantly equalizing in Argentina, Brazil and Uruguay and also in Chile, Costa Rica and Ecuador but, in the latter, their effect is small. In the rest of the countries, contributory pensions are unequalizing but their effect is also small. More unequal countries tend to redistribute more. Bolivia, Colombia, El Salvador, Guatemala, Honduras and Peru redistribute below the trend; Chile, Ecuador and Mexico are on trend; and, Argentina, Brazil, Costa Rica and Uruguay redistribute above the trend. Fiscal policy reduces poverty in nine countries. However, in Brazil, Bolivia, Guatemala and Honduras, the incidence of poverty after taxes, subsidies and transfers (excluding spending on education and health) is higher than market income poverty, even though fiscal policy is equalizing. In Brazil and Mexico, a third of the post-fiscal poor were impoverished by fiscal policy and, in Bolivia and Guatemala, two thirds were. Public spending on pre-school and primary education is always equalizing and also pro-poor (i.e., per capita spending falls with per capita income). Spending on secondary education is always equalizing but pro-poor only in some countries. Spending on tertiary education is never pro-poor; however, it is always equalizing except for Guatemala. Government spending on public health is always progressive in relative terms and equalizing.