The effects of Brazil's high taxation and social spending on the distribution of household income

Relative to other countries in Latin America, Brazil has high rates of taxation and large social spending. We estimate the redistributive effect of fiscal policy on income distribution and poverty in Brazil using household survey data that contain detailed information about many labor and non-labor income sources, direct taxes paid, contributions to the pension system, transfers received, use of public education and health services, and consumption. The rich detail of our data set allows us to single out the effects of each direct tax and transfer without simulating taxes or benefits. On the spending side, we find that although Brazil has some well-targeted anti-poverty programs, a large portion of direct transfer beneficiaries are non-poor and inequality and poverty reduction are low relative to Brazil’s spending. On the tax side, indirect taxes paid by the poor often surpass the benefits they receive.