Development

, Volume 57, Issue 3–4, pp 388–399 | Cite as

Income Redistribution and Poverty Reduction in Latin America: The role of social spending and taxation in achieving development goals

  • Nora Lustig
Thematic Section

Abstract

How much do social spending and taxation contribute to achieving the goals of poverty reduction and expanding the access to education and health services among the poor? Standard fiscal incidence analyses applied to Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay using a comparable methodology yields the following results. Direct taxes and cash transfers reduce inequality and poverty by non-trivial amounts in Argentina, Brazil, and Uruguay but less so in Bolivia, Mexico, and Peru. In Bolivia and Brazil indirect taxes more than offset the poverty-reducing impact of cash transfers. When one includes the effect of in-kind transfers in education and health valued at government costs, they reduce inequality in all countries by considerably more than cash transfers. Spending on public education and health services is broadly pro-poor, with the exception of tertiary education and the health component of the social security system.

Keywords

fiscal incidence inequality poverty taxes social spending Latin America 

Notes

Acknowledgements

This paper was prepared under the project Commitment to Equity led by Nora Lustig, the Commitment to Equity (CEQ) project was launched in 2008. The CEQ is a project of the Center for Inter-American Policy and the Department of Economics, Tulane University and its founding co-sponsor the Inter-American Dialogue. In April 2014, the Center for Global Development became a partner of CEQ. For more details please go to www.commitmentoequity.org. A very condensed version of this paper appeared as Lustig, Nora, Carola Pessino, and John Scott ‘The Impact of Taxes and Social Spending on Inequality and Poverty in Latin America: Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay. Introduction to Special Issue,’ in Public Finance Review, May 2014, Volume 42, Issue 3. The values shown in this paper may differ from those that appear in the working papers posted at www.commitmentoequity.org. If they differ, those included here take precedence as the most updated values. The authors are very grateful to Dan Teles as well as to Nicole Florack and Juan Carlos Monterrey, for their excellent research assistantship in the preparation of this overview and the background papers. We also thank Samantha Greenspun, Emily Travis, and Dustin Wonnell who contributed to the project at various points in time.

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Copyright information

© Society for International Development 2015

Authors and Affiliations

  • Nora Lustig

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