What is Behind Latin America's Declining Income Inequality?
36 Pages Posted: 14 Aug 2014
Date Written: July 2014
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.
Keywords: Income inequality, Latin America, Emerging markets, Developing countries, Social indicators, Cross country analysis, Panel analysis, Gini, emerging economies, Kuznets, gini coefficient, kuznets curve, declining inequality, rising income inequality, income gap, inequality reduction, world income distribution, decreasing function, inequality in education, measures of inequality, vulnerable groups, explaining inequality, income redistribution, redistributive impact, pro-poor, income distribution, social spending, low-income families, inequality decline, dependent variable, labor market, distribution of income, inequality will, unequal societies, pro-poor growth, redistributive effects, inequali
JEL Classification: D31, D63, E60, H53, I28, I38
Suggested Citation: Suggested Citation