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Falling Inequality in Latin America: The Role of Fiscal Policy

Published online by Cambridge University Press:  09 June 2020

Judith Clifton Open the ORCID record for Judith Clifton [Opens in a new window] ,
Daniel Díaz-Fuentes Open the ORCID record for Daniel Díaz-Fuentes [Opens in a new window]  and
Julio Revuelta
Judith Clifton*
Affiliation:
Professor of Economics, Universidad de Cantabria, Spain and Visiting Academic, University of Cambridge
Daniel Díaz-Fuentes
Affiliation:
Professor of Economics, Universidad de Cantabria, Spain and Visiting Research Fellow, Department of International Development, University of Oxford
Julio Revuelta
Affiliation:
Senior Lecturer in Economics, Universidad de Cantabria, Spain.
*
*Corresponding author. E-mail: Judith.clifton@unican.es.
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Abstract

Latin America is one of the world's only regions to have witnessed a fall in income inequality during the 2000s. This paper evaluates the role fiscal policy played in this change. Recent scholarship has examined this in individual countries; lacking is a regional perspective. We examine the effects of nine fiscal instruments on income inequality in 17 countries between 1990 and 2014. Fiscal policy had a positive – albeit small – effect in reducing income inequality, especially from 2003, working best at the urban level. Public spending on education, personal income taxes and social contributions were especially instrumental in reducing income inequality.

Spanish abstract

Spanish abstract

América Latina es una de las únicas regiones del mundo que observó una disminución en la desigualdad del ingreso durante la década de 2000. En este artículo se evalúa el papel que desempeñó la política fiscal en este cambio distributivo. Estudios recientes han examinado este cambio en países individuales; lo que falta es una perspectiva regional. En este trabajo examinamos los efectos de nueve instrumentos fiscales sobre la desigualdad del ingreso en 17 países entre 1990 y 2014. La política fiscal tuvo un efecto positivo, aunque exiguo, en la reducción de la desigualdad del ingreso, especialmente a partir de 2003, funcionando mejor a nivel urbano. El gasto público en educación, los impuestos a la renta personal y las contribuciones a la seguridad social fueron especialmente importantes para reducir la desigualdad del ingreso.

Portuguese abstract

Portuguese abstract

A América Latina é uma das únicas regiões do mundo a testemunhar uma queda na desigualdade de renda durante os anos 2000. Este artigo avalia o papel da política fiscal nessa mudança. Estudos recentes examinaram isso em países de forma individual; o que falta é uma perspectiva regional. Examinamos os efeitos de nove instrumentos fiscais sobre a desigualdade de renda em 17 países entre 1990 e 2014. A política fiscal teve um efeito positivo – embora pequeno – na redução da desigualdade de renda, especialmente a partir de 2003, funcionando melhor no nível urbano. Os gastos públicos em educação, imposto de renda, taxas e contribuições sociais foram especialmente úteis para reduzir a desigualdade de renda.

Keywords

fiscal policyincome inequalityLatin Americapublic spendingpublic revenuespolítica fiscaldesigualdad de ingresoLatinoaméricagasto públicorecaudación públicapolítica fiscaldesigualdade econômicaAmérica Latinagasto públicorenda pública
Type
Research Article
Information
Journal of Latin American Studies , Volume 52 , Issue 2 , May 2020 , pp. 317 - 341
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Copyright
Copyright © Cambridge University Press 2020

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References

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23 Additional caution should be exercised when considering data derived from household surveys, which can underestimate inequality, due to under-reported top incomes. Complementary use of other sources (such as tax data) and mixed methodologies can mitigate this challenge (see, for instance, Piketty, Thomas, Saez, Emmanuel and Zucman, Gabriel, ‘Distributional National Accounts: Methods and Estimates for the United States’, Quarterly Journal of Economics, 133: 2 (2018), pp. 553–609CrossRefGoogle Scholar; Bustos, Alfredo and Leyva, Gerardo, ‘Towards a More Realistic Estimate of the Income Distribution in Mexico’, Latin American Policy, 8: 1 (2017), pp. 114–26CrossRefGoogle Scholar; Campos-Vazquez, Raymundo M., Chavez, Emmanuel and Esquivel, Gerardo, ‘Estimating Top Income Shares without Tax Return Data: Mexico since the 1990s’, Latin American Policy, 9: 1 (2018), pp. 139–63CrossRefGoogle Scholar). However, inequality measures from these methodologies are not available in a comparable and systematic format for the Latin American countries during the period analysed in this research. For this reason, we use inequality measures from household surveys as the best available metric for inequality, which allows a comparison in a large sample of Latin American countries between 1990 and 2014.

24 Data for Latin America are unweighted regional averages based on national data provided by ECLAC on its CEPALSTAT website, https://estadisticas.cepal.org/cepalstat/WEB_CEPALSTAT/estadisticasIndicadores.asp?idioma=i (last accessed 15 Jan. 2020).

25 Ibid.

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30 Alvaredo et al. (co-ords.), World Inequality Report; Bárcena, Alicia, ‘Structural Constraints on Development in Latin America and the Caribbean: A Post-Crisis Reflection’, CEPAL Review, 100 (2010), pp. 7–27Google Scholar; ECLAC, Time for Equality: Closing Gaps, Opening Trails (Santiago de Chile: ECLAC, 2010); López-Calva and Lustig (eds.), Declining Inequality in Latin America.

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77 According to the International Labour Organization, Labour Overview 2017. Latin America and the Caribbean (Lima: International Labour Organization, 2017), pp. 44–5Google Scholar, informal employment in urban areas went from 52% in 2005 to 47% in 2014.

78 UN-Habitat, The State of Latin American and Caribbean Cities 2012 (Nairobi: UN-Habitat, 2012).

79 Deneulin and Sánchez-Ancochea, ‘Urban Inequality’.

80 UNDP, Human Development Report 2016 (New York: UNDP, 2016).

81 Jude Webber, ‘López Obrador Wins Historic Mandate for Change in Mexico’, Financial Times, 2 July 2018.