Income Inequality and the Role of the State in Latin America: an Overview

Richard Blundell (), Mariano Bosch, Nora Lustig and Marcela Melendez
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Mariano Bosch: Inter-American Development Bank
Nora Lustig: Tulane University
Marcela Melendez: World Bank

No 2505, Working Papers from Tulane University, Department of Economics

Abstract: This paper analyzes how the state can take actions to reduce the persistent and multifaceted nature of inequality in Latin America, where inherited factors account for 50-60% of disparities in individual earnings. Despite declines in income, education, and gender inequality, the region maintains the world's highest income inequality levels, with Gini coe icients above 0.45. Latin America continues to be characterized by significant ethnic and racial disparities, gender wage gaps, and fragmented market structures dominated by giant firms with excessive pricing and wage-setting power. The paper argues for comprehensive state intervention through a three-pronged approach : (1) closing earnings potential gaps through improved education, health, and skill development policies; (2) shaping labor and output markets through productivity-enhancing measures, minimum wage regulations, and competition policies; and (3) redistributing income via fiscal instruments including taxes, transfers, and social security systems. The paper emphasizes that effective inequality reduction requires a holistic policy mix integrating both pre-fiscal interventions addressing structural causes and post fiscal redistribution mechanisms, as purely redistributive approaches cannot adequately address deeper market ine iciencies and intergenerational transmission of disadvantage.

Keywords: income inequality; intergenerational transmission; ethnic and gender disparities; state intervention; fiscal redistribution; education (search for similar items in EconPapers)
JEL-codes: D31 D63 I24 I38 O54 (search for similar items in EconPapers)
Date: 2025-10
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http://repec.tulane.edu/RePEc/pdf/tul2505.pdf First Version, October 2025 (application/pdf)

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Working Paper: Income inequality and the role of the state in Latin America: an overview (2025)
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