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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

Nora Lustig (), George Gray-Molina Author-Workplace-NameUnited Nations Development Programme(UNDP), Sean Higgins, Miguel Jaramillo, Wilson Jiménez, Veronica Paz, Claudiney Pereira, Carola Pessino, John Scott and Ernesto Yañez
Additional contact information
Sean Higgins: Department of Economics, Tulane University
Wilson Jiménez: Instituto Alternativo
Veronica Paz: Instituto Alternativo
Claudiney Pereira: Department of Economic’s, Tulane University
John Scott: CIDE and CONEVAL
Ernesto Yañez: Instituto Alternativo

No 3, Commitment to Equity (CEQ) Working Paper Series from Tulane University, Department of Economics

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 is increased, leakages to the nonpoor are reduced and coverage of the extreme poor by direct transfer programs is expanded.

Keywords: fiscal incidence; inequality; poverty; taxes; social spending; Latin America (search for similar items in EconPapers)
JEL-codes: D31 D63 H11 H22 H5 I14 I24 I3 O15 (search for similar items in EconPapers)
Date: 2012-08
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Published in Commitment to Equity, August 2012, pages 1-25

Downloads: (external link)
http://repec.tulane.edu/RePEc/ceq/ceq03.pdf First version, 2012 (application/pdf)

Related works:
Working Paper: The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, and Peru: A Synthesis of Results (2012) Downloads
Working Paper: The impact of taxes and social spending on inequality and poverty in Argentina, Bolivia, Brazil, Mexico and Peru: a synthesis of results (2012) Downloads
Working Paper: The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico and Peru: A Synthesis of Results (2012) Downloads
Working Paper: The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico and Peru: A Synthesis of Results (2012) Downloads
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