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How Redistributive is Fiscal Policy in Latin America?: The Case of Chile and Mexico

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  • Barbara Castelletti

Abstract

This paper looks at the incidence of fiscal policy on the income distribution for Chile and Mexico. Notably by broadening the income concept to account for in-kind benefits and taxes, this paper provides a full picture of the effect of fiscal policy on reducing income inequality. The contrast between the estimates for Chile and Mexico and the rest of OECD countries provides an overall snapshot of income distribution of high inequality countries vis-à-vis advanced economies. The breakdown of the Gini coefficient at a detailed level of policy instruments also enables us to identify the main channels of income inequality reduction and shows how these results differ across countries. Our results for Chile and Mexico suggest that fiscal policy significantly benefits the poorest income groups, mainly through in-kind services such as education and health care. Nevertheless, when compared with outcomes in high-income countries, the effectiveness of fiscal policy in reducing inequality is still limited. Cash transfers (especially those for old-age programmes), direct taxation and, to some extent, a higher market inequality are the main factors behind this difference. Cet article étudie l’impact des politiques fiscales sur la répartition des revenus au Chili et au Mexique. En outre, en intégrant dans la définition des prestations les transferts en nature et les taxes, cet article dresse un portrait complet de l’effet des politiques fiscales dans la réduction des inégalités salariales. Les différences dans les estimations du Chili et du Mexique avec le reste des pays de l’OCDE permettent un aperçu général de la répartition des revenus dans les pays les plus inégalitaires par rapport aux économies avancées. L’analyse du coefficient de Gini à un niveau détaillé des instruments politiques nous permet également d’identifier les principaux canaux de réduction des inégalités et de comprendre l’origine des divergences entre pays. Nos résultats pour le Chili et le Mexique suggèrent que la politique fiscale bénéficie significativement aux pays à faible revenu, principalement à travers des services en nature tels que l’éducation et les services de santé. Toutefois, en comparaison avec les résultats des pays à haut revenu, l’efficacité de la politique fiscale sur la réduction des inégalités reste limitée. Les transferts en espèces (particulièrement ceux liés au système des retraites), l’imposition directe et, dans une certaine mesure, de fortes inégalités de marché sont les principaux facteurs de cette différence.

Suggested Citation

  • Barbara Castelletti, 2013. "How Redistributive is Fiscal Policy in Latin America?: The Case of Chile and Mexico," OECD Development Centre Working Papers 318, OECD Publishing.
  • Handle: RePEc:oec:devaaa:318-en
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    File URL: https://doi.org/10.1787/5k424rnjl424-en
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    Cited by:

    1. Martinez Aguilar,Sandra Natalia & Fuchs Tarlovsky,Alan & Ortiz-Juarez,Eduardo & Del Carmen Hasbun,Giselle Eugenia, 2017. "The impact of fiscal policy on inequality and poverty in Chile," Policy Research Working Paper Series 7939, The World Bank.
    2. Antón, Arturo & Boyd, Roy & Elizondo, Alejandra & Ibarrarán, María Eugenia, 2016. "Universal social insurance for Mexico: Modeling of a financing scheme," Economic Modelling, Elsevier, vol. 52(PB), pages 838-850.

    More about this item

    Keywords

    Amérique latine; analyse socio-fiscal; fiscal policy; income distribution; Latin America; politique fiscale; répartition des revenus; tax-benefit analysis;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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