inter-american dialogue washington, dc, june 4, 2013
DESCRIPTION
Fiscal Policy, Poverty and Redistribution in Latin America Nora Lustig Tulane University Nonresident Fellow CGD and IAD. Inter-American Dialogue Washington, DC, June 4, 2013. - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/1.jpg)
Fiscal Policy, Poverty and Redistribution in Latin America
Nora Lustig Tulane University
Nonresident Fellow CGD and IAD
Inter-American DialogueWashington, DC, June 4, 2013
![Page 2: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/2.jpg)
LATAM IS THE MOST UNEQUAL REGION IN THE WORLDGini Coefficient by Region (in %), 2004
(Ferreira and Ravallion, 2008)
32.233.6
38.9 38.9 39.1
44.7
53.2
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
High Income Europe andCentral Asia
South Asia North Africaand the
Middle East
East Asia andthe Pacific
Sub-SaharanAfrica
Latin Americaand the
Caribbean
Gin
i coe
ffici
ent
2
![Page 3: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/3.jpg)
Declining income inequality by country: 2000-2010 (Annual average change in Gini in %)
![Page 4: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/4.jpg)
Poverty: 1992-2010(Headcount Ratio in %)
![Page 5: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/5.jpg)
5
• Why has inequality declined?–Declining inequality of hourly labor
income–Larger and more progressive
transfers–Lower dependency ratios
![Page 6: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/6.jpg)
6
![Page 8: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/8.jpg)
8
• Special issue: Lustig, Pessino and Scott. Editors. “Fiscal Policy, Poverty and Redistribution in Latin America,”Public Finance Review (forthcoming)
– Argentina: Nora Lustig and Carola Pessino– Bolivia: George Gray Molina, Wilson Jimenez, Veronica Paz
and Ernesto Yañez– Brazil: Sean Higgins and Claudiney Pereira– Mexico: John Scott– Peru: Miguel Jaramillo– Uruguay: Marisa Bucheli, Nora Lustig, Maximo Rossi and
Florencia Amabile
![Page 9: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/9.jpg)
9
Standard Fiscal Incidence Analysis• Pre-tax and benefits incomes
• Allocators of taxes and benefits– personal income and consumption taxes– social spending: cash transfers and in-kind transfers
(education and health)– Consumption subsidies
• Post-tax and benefits incomes
• Countries (yr of Survey): Argentina (2009), Bolivia (2007), Brazil (2009), Guatemala (2009), Mexico (2008), Peru (2009), Uruguay (2009), Paraguay (2010)
![Page 10: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/10.jpg)
10
![Page 11: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/11.jpg)
11
Results
• Wide variation among countries in:– policy choices (or outcomes of
political processes?)–impact of those choices on income
redistribution and poverty reduction
![Page 12: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/12.jpg)
12
Government size varies greatly in Latin America
• Government spending is around 40 percent of GDP in Argentina and Brazil—similar to that of some European nations with larger welfare states• …while it is only around 20 percent
in Mexico and Peru
![Page 13: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/13.jpg)
13
Budget Size and CompositionPrimary and Social Spending as % of GDP
![Page 14: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/14.jpg)
14
Redistributive Impact Heterogeneous
• Taxes and transfers reduce inequality by nontrivial amounts in Argentina, Brazil, and Uruguay, less so in Mexico, and relatively little in Bolivia and Peru
• Bolivia and Uruguay start from similar Market Income Gini’s but end in different places with Final Income
• Brazil has the highest Market Income Gini by several orders of magnitude but ends up with a lower Final Income Gini than Bolivia and Peru
![Page 15: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/15.jpg)
15
Gini Before and After Taxes, Transfers, Subsidies and Free Government Services
![Page 16: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/16.jpg)
16
Direct Taxes Progressive but Underutilized
• Personal income tax varies from around five percent of GDP in Uruguay to nearly zero in Bolivia
• In all countries in which they exist, direct taxes are progressive, but because direct taxes are a small percentage of GDP almost everywhere, their redistributive impact is small
![Page 17: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/17.jpg)
17
Gini Before and After Direct Taxes
![Page 18: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/18.jpg)
18
Cash Transfers Powerful Poverty-Reducing Mechanism only when Targeted and of
Significant Magnitude• Cash transfers reduce extreme poverty by
more than 60 percent in Uruguay and Argentina…
….but only by 7 percent in Peru, which spends too little on cash transfers
![Page 19: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/19.jpg)
19
Headcount: Before and After Cash Transfers
![Page 20: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/20.jpg)
20
• Bolivia spends five times more in cash transfers than Peru (as a share of GDP) but…
…because funds are not targeted to the poor, the amount of redistribution and poverty reduction has been limited: it is only slightly higher than in Peru
![Page 21: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/21.jpg)
21
• Peru’s Juntos, although quite effective because of its fine targeting, achieves very limited poverty and inequality reduction because the scale of the program is small: –coverage of extreme poor is below
60 percent and per capita transfer is low (compared to poverty gap)
![Page 22: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/22.jpg)
22
Coverage of Direct Cash Transfers
Bolivia Brazil Peru0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
87.7%93.3%
57.7%
83.2%
73.1%
41.9%
67.8%
29.2%
15.5%
Poor<2.5 2.5<=Poor<4
Non poor
![Page 23: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/23.jpg)
23
“Leakages” of Direct Cash Transfers(Percent going to poor and nonpoor)
Bolivia Brazil Peru0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
25.2%16.8%
46.9%
12.8%
9.7%
24.0%
62.0%
73.5%
29.1%
Non poor2.5<=Poor<4Poor<2.5
![Page 24: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/24.jpg)
24
Indirect Taxes and Poverty
• In Brazil and Bolivia, indirect taxes wipe out most of the effect of direct transfers, and poverty is almost the same after as before taxes and cash transfers.
• In contrast, in Mexico, indirect taxes and subsidies reduce poverty further, because exemptions and informality allow the poor to pay little in the form of indirect taxe
![Page 25: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/25.jpg)
Headcount Ratio Before and After Indirect Taxes
![Page 26: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/26.jpg)
26
Gini Before and After Government Services Valued at Cost
![Page 27: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/27.jpg)
27
![Page 28: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/28.jpg)
28
![Page 29: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/29.jpg)
29
Fiscal Incidence Indicators: Winners and Losers
Who bears the burden of taxes and receives the benefits from cash transfers? • Fiscal incidence by decile and
socio-economic groups
![Page 30: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/30.jpg)
30
Incidence of Taxes and Cash TransfersNet Change in Income after Direct and Indirect Taxes and Transfers by Decile
1 2 3 4 5 6 7 8 9 10
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
BoliviaBrazilMexicoPeruUruguay
![Page 31: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/31.jpg)
31
![Page 32: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/32.jpg)
32
In sum: Bolivia, Mexico and Peru • Although Bolivia spends five times more than
Peru in cash transfers, because they are not really targeted to the poor they achieve little in terms of poverty reduction
• In contrast, Peru’s cash transfers are very well-targeted but the size of the flagship program is small
• In Mexico, the limitation is similar to Peru’s but less markedly so
![Page 33: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/33.jpg)
33
In sum: Brazil The largely positive redistributive picture of Brazil has three main problems:• A substantial portion of cash transfers benefit the
nonpoor• Indirect taxes weigh heavily on the market income
poor and wipe out the redistributive and poverty reducing effect of cash transfers
• About 16 percent of Brazilian social spending in tertiary education goes to the richest five percent of the population with incomes above US$50 per day.
![Page 34: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/34.jpg)
34
In sum: Argentina
• Poverty reduction and redistribution through fiscal policy are the highest in Argentina. Is Argentina a model of redistributive policies? – Increasingly relied on redistribution through cash
transfers => pension moratorium– Pension moratorium: good for elderly women bad for
incentives (informality) and problems of unfairness– Fiscal sustainability called into question: source of
revenues such as inflation tax and international reserves are problematic
![Page 35: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/35.jpg)
35
THANK YOU
![Page 36: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/36.jpg)
![Page 37: Inter-American Dialogue Washington, DC, June 4, 2013](https://reader035.vdocuments.site/reader035/viewer/2022062816/5681613d550346895dd0a1c7/html5/thumbnails/37.jpg)
37