Fiscal Redistribution and Income Inequality in Latin America

31 Pages Posted: 20 Apr 2016

See all articles by Edwin Goni

Edwin Goni

World Bank

Humberto Lopez

World Bank - Research Department

Luis Servén

World Bank - Development Research Group (DECRG)

Date Written: January 1, 2008

Abstract

Income inequality in Latin America ranks among the highest in the world. It can be traced back to the unequal distribution of assets (especially land and education) in the region. But the extent to which asset inequality translates into income inequality depends on the redistributive capacity of the state. This paper documents the performance of Latin American fiscal systems from the perspective of income redistribution using newly-available information on the incidence of taxes and transfers across the region. The findings indicate that: (i) the differences in income inequality before taxes and transfers between Latin America and Western Europe are much more modest than those after taxes and transfers; (ii) the key reason is that, in contrast with industrial countries, in most Latin American countries the fiscal system is of little help in reducing income inequality; and (iii) in countries where fiscal redistribution is significant, it is achieved mostly through transfers rather than taxes. These facts stress the need for fiscal reforms across the region to further the goal of social equity. However, different countries need to place different relative emphasis on raising tax collection, restructuring the tax system, and improving the targeting of expenditures.

Keywords: Taxation & Subsidies, Emerging Markets, Debt Markets, Economic Theory & Research, Poverty Impact Evaluation

Suggested Citation

Pacchioni, Edwin Goni and Lopez, Humberto and Servén, Luis, Fiscal Redistribution and Income Inequality in Latin America (January 1, 2008). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2008. Available at SSRN: https://ssrn.com/abstract=1087459

Edwin Goni Pacchioni

World Bank ( email )

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

Humberto Lopez

World Bank - Research Department ( email )

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

Luis Servén (Contact Author)

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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