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The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico and Peru: A Synthesis of Results

  • Nora Lustig

    ()

    (Department of Economics, Tulane University)

  • George Gray Molina

    ()

    (Chief Economist for UNDP-Latin America and the Caribbean, New York, New York)

  • Sean Higgins

    ()

    (Department of Economics, Tulane University)

  • Miguel Jaramillo

    ()

    (GRADE (Grupo de Análisis para el Desarrollo), Peru)

  • Wilson Jimenez
  • Veronica Paz

    ()

  • Claudiney Pereira

    ()

    (Department of Economics, Tulane University)

  • Carola Pessino

    ()

    (School of Government and Executive Director, Centro de Investigaciones y Evaluación en Economía Social para el Alivio de la Pobreza, Universidad Torcuato Di Tella, Buenos Aires, Argentina)

  • John Scott

    ()

    (CIDE (Centro de Investigación y Docencia Económicas), Mexico and,Consejero Académico, CONEVAL (Consejo Nacional de Evaluación de la Política de Desarrollo Social), Mexico)

  • Ernesto Yanez

    ()

We apply a standard tax and benefit incidence analysis to estimate the impact on inequality and poverty of direct taxes, indirect taxes and subsidies, and social spending (cash and food transfers and in-kind transfers in education and health). The extent of inequality reduction induced by direct taxes and transfers is rather small (2 percentage points on average) especially when compared with that found in Western Europe (15 percentage points on average). What prevents Argentina, Bolivia and Brazil from achieving similar reductions in inequality is not the lack of revenues but the fact that they spend less on cash transfers-especially transfers that are progressive in absolute terms--as a share of GDP. Indirect taxes result in that net contributors to the fiscal system start at the fourth, third and even second decile on average, depending on the country. When in-kind transfers in education and health are added, however, the bottom six deciles are net recipients. The impact of transfers on inequality and poverty reduction could be higher if spending on direct cash transfers that are progressive in absolute terms is increased, leakages to the nonpoor are reduced and coverage of the extreme poor by direct transfer programs is expanded.

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File URL: http://econ.tulane.edu/RePEc/pdf/tul1216.pdf
File Function: First Version, August 2012
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Paper provided by Tulane University, Department of Economics in its series Working Papers with number 1216.

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Length: 27 pages
Date of creation: Aug 2012
Date of revision:
Handle: RePEc:tul:wpaper:1216
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  1. Owen O'Donnell & Eddy van Doorslaer & Adam Wagstaff & Magnus Lindelow, 2008. "Analyzing Health Equity Using Household Survey Data : A Guide to Techniques and Their Implementation," World Bank Publications, The World Bank, number 6896, June.
  2. Miguel Jaramillo, 2014. "The Incidence of Social Spending and Taxes in Peru," Public Finance Review, SAGE Publishing, vol. 42(3), pages 391-412, May.
  3. Facundo Alveredo & Juliana Londoño Vélez, 2013. "High incomes and personal taxation in a developing economy: Colombia 1993-2010," Commitment to Equity (CEQ) Working Paper Series 1312, Tulane University, Department of Economics.
  4. Maynor Cabrera & Nora Lustig & Hilcías E. Morán, 2014. "Fiscal policy, inequality and the ethnic divide in Guatemala," Commitment to Equity (CEQ) Working Paper Series 1320, Tulane University, Department of Economics.
  5. Lambert, Peter J, 1985. "On the Redistributive Effect of Taxes and Benefits," Scottish Journal of Political Economy, Scottish Economic Society, vol. 32(1), pages 39-54, February.
  6. John Scott, 2013. "Redistributive Impact and Efficiency of Mexico's Fiscal System," Commitment to Equity (CEQ) Working Paper Series 1308, Tulane University, Department of Economics, revised Jul 2013.
  7. Marisa Bucheli & Nora Lustig & Maximo Rossi & Florencia Amabile, 2012. "Social Spending, Taxes and Income Redistribution in Uruguay," Working Papers 1217, Tulane University, Department of Economics.
  8. Karla Breceda & Jamele Rigolini & Jaime Saavedra, 2009. "Latin America and the Social Contract: Patterns of Social Spending and Taxation," Population and Development Review, The Population Council, Inc., vol. 35(4), pages 721-748.
  9. Ferreira, Francisco H.G. & Ravallion, Martin, 2008. "Global poverty and inequality : a review of the evidence," Policy Research Working Paper Series 4623, The World Bank.
  10. John Scott, 2014. "Redistributive Impact and Efficiency of Mexico’s Fiscal System," Public Finance Review, SAGE Publishing, vol. 42(3), pages 368-390, May.
  11. Florencia Amábile & Marisa Bucheli & Máximo Rossi, 2014. "Inequality and poverty in Uruguay by race: the impact of fiscal policies," Commitment to Equity (CEQ) Working Paper Series 1319, Tulane University, Department of Economics, revised Feb 2015.
  12. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
  13. Sean Higgins & Nora Lustig & Whitney Ruble & Timothy Smeeding, 2013. "Comparing the incidence of taxes and social spending in Brazil and the United States," Working Papers 316, ECINEQ, Society for the Study of Economic Inequality.
  14. Herwig Immervoll & Horacio Levy & José Ricardo Nogueira & Cathal O´Donoghue & Rozane Bezerra de Siqueira, 2005. "The Impact of Brazil´s Tax-Benefit System on Inequality and Poverty," Ibero America Institute for Econ. Research (IAI) Discussion Papers 117, Ibero-America Institute for Economic Research.
  15. Nora Lustig & Carola Pessino & John Scott, 2014. "The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay," Public Finance Review, SAGE Publishing, vol. 42(3), pages 287-303, May.
  16. Goñi, Edwin & Humberto López, J. & Servén, Luis, 2011. "Fiscal Redistribution and Income Inequality in Latin America," World Development, Elsevier, vol. 39(9), pages 1558-1569, September.
  17. Nora Lustig, 2013. "Commitment to Equity: Diagnostic Questionnaire," Commitment to Equity (CEQ) Working Paper Series 1302, Tulane University, Department of Economics.
  18. Maynor Cabrera & Nora Lustig & Hilcias E. Moran, 2014. "Fiscal policy, inequality and the ethnic divide in Guatemala," Working Papers 343, ECINEQ, Society for the Study of Economic Inequality.
  19. Nora Lustig & Carola Pessino, 2013. "Social spending and income redistribution in Argentina during the 2000s: The rising noncontributory pensions," Commitment to Equity (CEQ) Working Paper Series 1305, Tulane University, Department of Economics, revised Aug 2013.
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  21. repec:tul:ceqwps:1314 is not listed on IDEAS
  22. Pablo Sauma & Juan Diego Trejos, 2014. "Universidad de Costa Rica," Commitment to Equity (CEQ) Working Paper Series 1318S, Tulane University, Department of Economics.
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  24. Sean Higgins & Claudiney Pereira, 2014. "The Effects of Brazil’s Taxation and Social Spending on the Distribution of Household Income," Public Finance Review, SAGE Publishing, vol. 42(3), pages 346-367, May.
  25. Sean Higgins & Nora Lustig, 2013. "Measuring Impoverishment: An Overlooked Dimension of Fiscal Incidence," Working Papers 1315, Tulane University, Department of Economics.
  26. Vito Tanzi, 2013. "Tax reform in Latin America: a long term assessment," Commitment to Equity (CEQ) Working Paper Series 1315, Tulane University, Department of Economics.
  27. Gabriel Burdín & Fernando Esponda & Andrea Vigorito, 2014. "Inequality and top incomes in Uruguay: a comparison between household surveys and income tax micro-data," Commitment to Equity (CEQ) Working Paper Series 1321, Tulane University, Department of Economics.
  28. Andrew Barnard, 2009. "The effects of taxes and benefits on household income, 2007/08," Economic & Labour Market Review, Palgrave Macmillan;Office for National Statistics, vol. 3(8), pages 56-66, August.
  29. Sean Higgins & Nora Lustig & Julio Ramirez & William Swanson, 2013. "Social Spending, taxes and income redistribution in Paraguay," Commitment to Equity (CEQ) Working Paper Series 1311, Tulane University, Department of Economics.
  30. Sean Higgins & Nora Lustig & Julio Ramirez & Billy Swanson, 2013. "Social Spending, Taxes and Income Redistribution in Paraguay," Working Papers 1311, Tulane University, Department of Economics.
  31. Sean Higgins & Claudiney Pereira, 2013. "The effects of Brazil's high taxation and social spending on the distribution of household income," Commitment to Equity (CEQ) Working Paper Series 1307, Tulane University, Department of Economics, revised May 2013.
  32. Verónica Paz Arauco & George Gray Molina & Wilson Jiménez Pozo & Ernesto Yáñez Aguilar, 2012. "Explaining low redistributive impact in Bolivia," Commitment to Equity (CEQ) Working Paper Series 1306, Tulane University, Department of Economics, revised Apr 2013.
  33. Marisa Bucheli & Nora Lustig & Máximo Rossi & Florencia Amábile, 2013. "How much redistribution does Uruguay accomplish through social spending and taxes?," Commitment to Equity (CEQ) Working Paper Series 1310, Tulane University, Department of Economics, revised Jul 2013.
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