The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico and Peru: A Synthesis of Results

Tulane Economics Working Paper Series, Working Paper 1216

28 Pages Posted: 25 Aug 2012 Last revised: 5 Sep 2012

See all articles by Nora Lustig

Nora Lustig

Tulane University

George Gray-Molina

affiliation not provided to SSRN

Sean Higgins

affiliation not provided to SSRN

Miguel Jaramillo

Grupo de Analisis para el Desarrollo (GRADE)

Wilson Jimenez

Tulane University - Department of Economics

Veronica C. Paz

Indiana University of Pennsylvania

Claudiney Pereira

Tulane University - Department of Economics

Carola Pessino

Universidad del CEMA

John Scott

Independent

Ernesto Yanez

Fundacion Del Instituto Alternativo

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2012

Abstract

We apply a standard tax and benefit incidence analysis to estimate the impact on inequality and poverty of direct taxes, indirect taxes and subsidies, and social spending (cash and food transfers and in-kind transfers in education and health). The extent of inequality reduction induced by direct taxes and transfers is rather small (2 percentage points on average) especially when compared with that found in Western Europe (15 percentage points on average). What prevents Argentina, Bolivia and Brazil from achieving similar reductions in inequality is not the lack of revenues but the fact that they spend less on cash transfers especially transfers that are progressive in absolute terms - as a share of GDP. Indirect taxes result in that net contributors to the fiscal system start at the fourth, third and even second decile on average, depending on the country. When in-kind transfers in education and health are added, however, the bottom six deciles are net recipients. The impact of transfers on inequality and poverty reduction could be higher if spending on direct cash transfers that are progressive in absolute terms is increased, leakages to the nonpoor are reduced and coverage of the extreme poor by direct transfer programs is expanded.

Keywords: fiscal incidence, inequality, poverty, taxes, social spending, Latin America, Argentina, Bolivia, Brazil, Mexico, Peru

JEL Classification: D31, D63, H11, H22, H5, I14, I24, I3, O15

Suggested Citation

Lustig, Nora Claudia and Gray-Molina, George and Higgins, Sean and Jaramillo, Miguel and Jimenez, Wilson and Paz, Veronica C. and Pereira, Claudiney and Pessino, Carola and Scott, John and Yanez, Ernesto, The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico and Peru: A Synthesis of Results (August 1, 2012). Tulane Economics Working Paper Series, Working Paper 1216, Available at SSRN: https://ssrn.com/abstract=2135600 or http://dx.doi.org/10.2139/ssrn.2135600

Nora Claudia Lustig (Contact Author)

Tulane University ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States

George Gray-Molina

affiliation not provided to SSRN

No Address Available

Sean Higgins

affiliation not provided to SSRN ( email )

Miguel Jaramillo

Grupo de Analisis para el Desarrollo (GRADE) ( email )

Av, Gra├║ 915
Barranco, Lima
Peru

Wilson Jimenez

Tulane University - Department of Economics ( email )

New Orleans, LA 70118
United States

Veronica C. Paz

Indiana University of Pennsylvania ( email )

664 PRATT DR
INDIANA, PA 15705-1036
United States
724-590-9164 (Phone)

Claudiney Pereira

Tulane University - Department of Economics ( email )

New Orleans, LA 70118
United States

Carola Pessino

Universidad del CEMA ( email )

Buenos Aires
Argentina

John Scott

Independent ( email )

Ernesto Yanez

Fundacion Del Instituto Alternativo

La Paz
Bolivia

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