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Decomposing the recent inequality decline in Latin America

João Pedro Azevedo, Gabriela Inchauste and Viviane Sanfelice

No 6715, Policy Research Working Paper Series from The World Bank

Abstract: Over the past decade, 12 of 14 Latin American countries have experienced a reduction in inequality. Based on a series of counterfactual simulations, the observed changes in inequality are decomposed in order to identify the main determinants of inequality. In contrast to methods that focus on aggregate summary statistics, the method adopted in this paper generates counterfactual distributions, so that the analysis can account for changes related to demographics, occupation, labor earnings and transfers, pensions, and other nonlabor income sources. The results show that for the majority of countries in the sample, the most important contributor to the observed decline in inequality has been the relatively strong growth in labor earnings at the bottom of the income distribution. In particular, most of the reduction in inequality can be attributed to an increase in earnings per hour for the bottom of the income distribution. The paper also contributes to the literature on inequality in Latin America by providing the Shapley-Shorrocks value of this decomposition.

Keywords: Poverty Impact Evaluation; Inequality; Services&Transfers to Poor; Labor Policies; Emerging Markets (search for similar items in EconPapers)
Date: 2013-12-01
New Economics Papers: this item is included in nep-dev, nep-lam and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (90)

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