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

28 Pages Posted: 1 Mar 2013

See all articles by Nora Lustig

Nora Lustig

Tulane University

George Gray Molina

United Nations Development Programme - RBLAC

Sean Higgins

Tulane University

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

Centro de Investigación y Docencia Económicas (CIDE)

Ernesto Yanez

Fundacion Del Instituto Alternativo

Multiple version iconThere are 2 versions of this paper

Date Written: November 26, 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 were increased, leakages to the nonpoor reduced, and coverage of the extreme poor by direct transfer programs expanded.

Keywords: fiscal incidence, inequality, poverty, taxes, social spending, Latin America

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 (November 26, 2012). Center for Global Development Working Paper No. 311, Available at SSRN: https://ssrn.com/abstract=2226571 or http://dx.doi.org/10.2139/ssrn.2226571

Nora Claudia Lustig (Contact Author)

Tulane University ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States

George Gray Molina

United Nations Development Programme - RBLAC ( email )

One United Nations Plaza
New York, NY 10017
United States

Sean Higgins

Tulane University ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States

Miguel Jaramillo

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

Av, Graú 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

Centro de Investigación y Docencia Económicas (CIDE) ( email )

Circuito Tecnopolo Norte 117
Col. Tecnopolo Pocitos II
Aguascalientes, 20313
Mexico

Ernesto Yanez

Fundacion Del Instituto Alternativo

La Paz
Bolivia

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