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

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  • Nora Lustig, George Gray-Molina, Sean Higgins, Miguel Jaramillo, Wilson Jiménez, Veronica Paz, Claudiney Pereira, Carola Pessino, John Scott, and Ernesto Yañez
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 prog ressive 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.

Suggested Citation

  • Nora Lustig, George Gray-Molina, Sean Higgins, Miguel Jaramillo, Wilson Jiménez, Veronica Paz, Claudiney Pereira, Carola Pessino, John Scott, and Ernesto Yañez, 2012. "The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, and Peru: A Synthesis of Results," Working Papers 311, Center for Global Development.
    • Handle: RePEc:cgd:wpaper:311
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    1. Owen O'Donnell & Eddy van Doorslaer & Adam Wagstaff & Magnus Lindelow, 2008. "Analyzing Health Equity Using Household Survey Data : A Guide to Techniques and Their Implementation," World Bank Publications - Books, The World Bank Group, number 6896.
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    4. Nora Lustig & Carola Pessino & John Scott, 2014. "The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay: Introduction to the Special Issue," Public Finance Review, , vol. 42(3), pages 287-303, May.
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    More about this item

    Keywords

    fiscal incidence; inequality; poverty; taxes; social spending; Latin America;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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