Decomposing the Recent Inequality Decline in Latin America

26 Pages Posted: 20 Apr 2016

Date Written: December 1, 2013

Abstract

Over the past decade, 12 of 14 Latin American countries have experienced a reduction in inequality. Based on a series of counterfactual simulations, the observed changes in inequality are decomposed in order to identify the main determinants of inequality. In contrast to methods that focus on aggregate summary statistics, the method adopted in this paper generates counterfactual distributions, so that the analysis can account for changes related to demographics, occupation, labor earnings and transfers, pensions, and other nonlabor income sources. The results show that for the majority of countries in the sample, the most important contributor to the observed decline in inequality has been the relatively strong growth in labor earnings at the bottom of the income distribution. In particular, most of the reduction in inequality can be attributed to an increase in earnings per hour for the bottom of the income distribution. The paper also contributes to the literature on inequality in Latin America by providing the Shapley-Shorrocks value of this decomposition.

Keywords: Poverty Impact Evaluation, Inequality, Services & Transfers to Poor, Labor Policies, Emerging Markets

Suggested Citation

Wagner de Azevedo, João Pedro and Inchauste Comboni, Maria Gabriela and Sanfelice, Viviane, Decomposing the Recent Inequality Decline in Latin America (December 1, 2013). World Bank Policy Research Working Paper No. 6715, Available at SSRN: https://ssrn.com/abstract=2365876

João Pedro Wagner de Azevedo (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Maria Gabriela Inchauste Comboni

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Viviane Sanfelice

University of Rochester ( email )

300 Crittenden Blvd.
Rochester, NY 14627
United States

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