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What is Behind Latin America’s Declining Income Inequality?

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  • Evridiki Tsounta
  • Anayochukwu Osueke

Abstract

Income inequality in Latin America has declined during the last decade, in contrast to the experience in many other emerging and developed regions. However, Latin America remains the most unequal region in the world. This study documents the declining trend in income inequality in Latin America and proposes various reasons behind this important development. Using a panel econometric analysis for a large group of emerging and developing countries, we find that the Kuznets curve holds. Notwithstanding the limitations in the dataset and of cross-country regression analysis more generally, our results suggest that almost two-thirds of the recent decline in income inequality in Latin America is explained by policies and strong GDP growth, with policies alone explaining more than half of this total decline. Higher education spending is the most important driver, followed by stronger foreign direct investment and higher tax revenues. Results suggest that policies and to some extent positive growth dynamics could play an important role in lowering inequality further.

Suggested Citation

  • Evridiki Tsounta & Anayochukwu Osueke, 2014. "What is Behind Latin America’s Declining Income Inequality?," IMF Working Papers 14/124, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:14/124
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    Cited by:

    1. repec:ces:ifodic:v:14:y:2016:i:4:p:19267790 is not listed on IDEAS
    2. Jorge Alvarez & Felipe Benguria & Niklas Engbom & Christian Moser, 2018. "Firms and the Decline in Earnings Inequality in Brazil," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(1), pages 149-189, January.
    3. repec:eee:socmed:v:196:y:2018:i:c:p:115-122 is not listed on IDEAS
    4. Roy, Pronoy & Husain, Zakir, 2019. "Education as a way to reducing inequality: Evidence from India," MPRA Paper 93907, University Library of Munich, Germany.
    5. Kang, Jong Woo, 2015. "Interrelation between Growth and Inequality," ADB Economics Working Paper Series 447, Asian Development Bank.
    6. Gustavo Yamada & Juan Francisco Castro & Nelson Oviedo, 2016. "Revisitando el coeficiente de Gini en el Perú: El rol de las políticas públicas en la evolución de la desigualdad," Working Papers 16-06, Centro de Investigación, Universidad del Pacífico.
    7. Clemens Knoppe, 2018. "Wage Income Distribution and Mobility in Malta," CBM Working Papers WP/06/2018, Central Bank of Malta.
    8. Florian Dorn, 2016. "On Data and Trends in Income Inequality around the World," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(4), pages 54-64, December.
    9. repec:eee:streco:v:45:y:2018:i:c:p:84-93 is not listed on IDEAS
    10. repec:ces:ifodic:v:14:y:2016:i:04:p:54-64 is not listed on IDEAS

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