Latin America and the Social Contract: Patterns of Social Spending and Taxation

27 Pages Posted: 20 Apr 2016

See all articles by Karla Breceda

Karla Breceda

World Bank

Jamele Rigolini

New York University (NYU) - Department of Economics

Jaime Saavedra

GRADE; World Bank

Date Written: April 1, 2008

Abstract

This paper presents an incidence analysis of both social spending and taxation for seven Latin American countries, the United Kingdom, and the United States. The analysis shows that Latin American countries are headed de facto toward a minimalist welfare state similar to the one in the United States, rather than toward a stronger, European-like welfare state. Specifically, both in Latin America and in the United States, social spending remains fairly flat across income quintiles. On the taxation side, high income inequality causes the rich to bear most of the taxation burden. This causes a vicious cycle where the rich oppose the expansion of the welfare state (as they bear most of its burden without receiving much back), which in turn maintains long-term inequalities. The recent increased socioeconomic instability in many Latin American countries shows nonetheless a real need for a stronger welfare state, which, if unanswered, may degenerate into short-term and unsustainable policies. The case of Chile suggests that a way out from this apparent dead end can be found, as elites may be willing to raise their contribution to social spending if this can lead to a more stable social contract.

Keywords: Public Sector Economics & Finance, Taxation & Subsidies, Economic Theory & Research, Services & Transfers to Poor

Suggested Citation

Breceda, Karla and Rigolini, Jamele and Saavedra, Jaime, Latin America and the Social Contract: Patterns of Social Spending and Taxation (April 1, 2008). World Bank Policy Research Working Paper No. 4604, Available at SSRN: https://ssrn.com/abstract=1149107

Karla Breceda (Contact Author)

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Jamele Rigolini

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

Jaime Saavedra

GRADE ( email )

Av, Graú 915
Barranco, Lima
Peru

World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

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