Macroeconomic policy and poverty in Brazil

Brazil is a country where the 50% poorest detain nearly 10% of its aggregate income and where the 10% richest detain almost 50% of aggregate income4 . The corollary of this high degree of inequality is that if one is only concerned with maximizing the level of the GDP, the implicit social welfare function adopted devotes half of its weight to the well being of 10% of the population. In other words, Brazilian concentration of income creates anomalies within the representative agent assumptions implicit in macroeconomic analysis where people are worth what they earn. Poverty analysis invert this population weight structure assigning zero weight to the non-poor segments of society and ideally attributing weights to individuals increasing with their unsatisfied needs. This project studies links between macroeconomic developments in Brazil and poverty. The analysis is divided in two parts: The first part describes the evolution of Brazilian poverty and its main macroeconomic determinants during the last 15 years. The second part takes advantage of the wild swings of poverty and inequality measures during the 1993-96 period to study their main macroeconomic determinants. Given the major importance of the Real plan, special attention will be paid to the analysis of the disinflation impacts on the level and the distribution of income and to possible synergism between these two dimensions of poverty determination. The third part of the project decomposes changes of various poverty indexes across different groups assigned by characteristics of the heads of households (i.e.; gender, years, schooling, race, working class, sectors of activity, region, population density). Next this decomposition is taken one step further by disentangling changes in these different poverty cells in terms of their respective changes in mean inequality of per capita income. These poverty profiles helps to map the sources of poverty changes in historical analysis and it gives internal consistency to counter-factual exercises.