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Income inequality and the role of the state in Latin America: an overview

Author

Listed:
  • Richard Blundell

    (Institute for Fiscal Studies)

  • Mariano Bosch

    (Inter-American Development Bank)

  • Nora Lustig

    (Tulane University)

  • Marcela Melendez

    (World Bank)

Abstract

This paper analyzes how the state can take actions to reduce the persistent and multifaceted nature of inequality in Latin America, where inherited factors account for 50-60% of disparities in individual earnings. Despite declines in income, education, and gender inequality, the region maintains the world's highest income inequality levels, with Gini coe icients above 0.45. Latin America continues to be characterized by significant ethnic and racial disparities, gender wage gaps, and fragmented market structures dominated by giant firms with excessive pricing and wage-setting power. The paper argues for comprehensive state intervention through a three-pronged approach : (1) closing earnings potential gaps through improved education, health, and skill development policies; (2) shaping labor and output markets through productivity-enhancing measures, minimum wage regulations, and competition policies; and (3) redistributing income via fiscal instruments including taxes, transfers, and social security systems. The paper emphasizes that effective inequality reduction requires a holistic policy mix integrating both pre-fiscal interventions addressing structural causes and post fiscal redistribution mechanisms, as purely redistributive approaches cannot adequately address deeper market ine iciencies and intergenerational transmission of disadvantage.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Richard Blundell & Mariano Bosch & Nora Lustig & Marcela Melendez, 2025. "Income inequality and the role of the state in Latin America: an overview," IFS Working Papers W25/49, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:25/49
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    References listed on IDEAS

    as
    1. Guido Neidhöfer & Nora Lustig & Mariano Tommasi, 2021. "Intergenerational transmission of lockdown consequences: prognosis of the longer-run persistence of COVID-19 in Latin America," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(3), pages 571-598, September.
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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