The State and Income Inequality in Brazil

Abstract

Using a factor decomposition of the Gini coefficient we measure the contribution to inequality of direct monetary income flows to and from the Brazilian State. The income flows from the State include public servants' earnings, Social Security pensions, unemployment benefits and Social Assistance transfers. The income flows to the State comprise direct taxes and employees' social security contributions. Data comes from the Brazilian POF 2008-9. The results indicate that the State contributes directly to a very large share of inequality. Factors associated to work in the public sector – wages and pensions – are very concentrated and regressive. Factors related to the private sector are still concentrated, but progressive. Contrary to what has been found in other countries, public spending with work and social policies is concentrated in the elites and, taken as a whole, tends to increase inequality. Redistributive mechanisms that could reverse this inequality, such as taxes and social assistance, are very progressive but proportionally small; consequently their effect is completely offset by the regressive income flows from the State.

Keywords: Income Distribution, Social Inequality, Welfare State, Social Policies, Public work, Pensions

JEL Classification: D31, D33, D63, H22, H23, H53, H55, I38, J45