Is there progress in solving
the burden of inequality?
Nora Lustig
Tulane University
Latin America: Taking Off or Still Falling
Behind?
Yale Center for the Study of Globalization
April 4-5, 2013
References
•
•
•
•
•
•
•
Alvaredo, Facundo and Juliana Londoño (2013) “High Incomes and Personal Taxation in a
Developing Economy: Colombia 1993-2010,” CEQ Working Paper No. 12, March.
Azevedo, J. P., G. Inchauste, and V. Sanfelice (2012) “Decomposing the Recent Inequality
Decline in Latin America”, Mimeo, The World Bank.
Campos, Raymundo, Gerardo Esquivel and Nora Lustig (2013) ´The Rise and Fall of
Income Inequality in Mexico, 1989–2010,” in Giovanni Andrea Cornia (editor), title not
yet specified, Oxford University Press, forthcoming.
Gasparini, L., S. Galiani, G. Cruces, and P. Acosta (2011) “Educational Upgrading and
Returns to Skills in Latin America. Evidence from a Supply-Demand Framework,
Lustig, Nora, Luis F. Lopez-Calva and Eduardo Ortiz-Juarez (2013) ´Deconstructing the
Decline in Inequality in Latin America,´ chapter for Essays in Honor of Enrique Iglesias
Lustig, Nora and Carola Pessino (2013) “Social Spending and Income Redistribution in
Argentina in the 2000s: the Rising Role of Noncontributory Pensions,” CEQ Working
Paper No. 5, January.
Lustig, Nora, Carola Pessino and John Scott, (2013)“The Impact of Taxes and Social
Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, Peru and
Uruguay: An Overview,” CEQ Working Paper No. 13, April 2013.
Inequality in LA is high…
…but declining since around 2000
• Decline is pervasive and significant:
–Statistically significant
–Larger than the rise in inequality in
1990s
–Important contribution to the decline in
poverty
LATAM IS THE MOST UNEQUAL REGION IN THE
WORLD
Gini Coefficient by Region (in %), 2004
(Ferreira and Ravallion, 2008)
60.0
55.0
53.2
Gini coefficient
50.0
44.7
45.0
40.0
35.0
32.2
38.9
38.9
39.1
South Asia
North Africa
and the
Middle East
East Asia and
the Pacific
33.6
30.0
25.0
20.0
High Incom e
Europe and
Central Asia
Sub-Saharan Latin Am erica
Africa
and the
Caribbean
4
Declining income inequality by country: 2000-2010
(Annual average change in Gini in %)
The rise of income inequality in the
1990s and the fall in the 2000s
(Annual average change in Gini in %)
Poverty: 1992-2010
(Headcount Ratio in %)
50.0
44.4
45.0
41.5
40.7
40.0
35.0
30.0
29.6
27.8
24.7
25.0
24.9
20.0
16.3
15.0
10.0
5.0
0.0
1992
1998
$2.5 a day poverty line
c.2000
$4 a day poverty line
c.2010
Decomposing the change in poverty in the
2000s: growth vs. redistribution
(Datt-Ravallion Decomp Method)
Growth
Redistribution
Change in poverty ($2.5 a day) during the 2000s*
140%
90%
40%
-10%
-6.2
-12.4
-12.3
Bolivia
Brazil
-4.8
-6.6
Chile
Costa Rica
-12.1
-7.8
-6.1
Honduras
Mexico
-12.6
-10.7
Panama
Peru
-6.2
-60%
Argentina
Ecuador
Paraguay
• Determinants:
–Declining inequality of hourly labor
income
–Larger and more progressive
transfers
–Lower dependency ratios
• Decomposition of decline by income
source, 16 countries (Azevedo et al.)
Adult
Occupati Hours
populatio
on Share worked
n
Argentina
14%
7%
13%
Brazil
12%
0%
-3%
Chile
18%
-8%
-4%
Colombia
10%
10%
13%
Costa Rica 28%
-19%
-10%
Dominican Rep.9%
-13%
-11%
Ecuador
13%
-4%
2%
El Salvador 15%
-5%
-3%
Honduras
26%
-33%
38%
Mexico
13%
-9%
-6%
Panama
6%
6%
13%
Paraguay
20%
2%
10%
Peru
0%
-1%
7%
Uruguay
24%
45%
-14%
LAC-14
12%
-2%
0%
Labor
income
per hour
33%
41%
29%
45%
-77%
24%
66%
41%
-91%
64%
22%
-64%
37%
-114%
45%
Capital
-1%
0%
5%
-4%
10%
4%
2%
3%
5%
3%
-1%
0%
-1%
-1%
1%
Pensions Transfers
14%
14%
16%
-5%
-6%
2%
-2%
-1%
-7%
3%
10%
-3%
1%
-60%
7%
7%
13%
34%
25%
18%
38%
15%
11%
12%
13%
24%
2%
0%
110%
14%
Other
Residual
non-labor
-14%
7%
-26%
18%
-36%
-3%
6%
15%
-20%
22%
0%
0%
26%
-128%
11%
28%
15%
35%
-12%
-9%
50%
1%
25%
-31%
-3%
20%
132%
31%
39%
13%
• Determinants of declining inequality
in hourly labor earnings:
=> Decline in returns to education
(skill premium)
• Supply
• Demand
• Institutions
• Degraded tertiary
Changes in returns to education: 2000-2010
(vis a vis incomplete primary or no education)
Change in Gini
Change in returns on primary schooling
Change in returns on secondary schooling Change in returns on tertiary schooling
6.0
4.0
-0.90
-0.72
-0.71
-0.66
-0.64
-0.51
Bolivia
Nicaragua
-4.0
-1.07
-1.22
Chile
-2.0
-1.16
Peru
-1.23
-1.31
Paraguay
0.0
Panama
2.0
-0.42
-0.91
-1.49
-6.0
-8.0
Costa Rica
Dominican Rep.
Brazil
Mexico
Venezuela
El Salvador
Argentina
-12.0
Ecuador
-10.0
Wage Premium: Supply (blue) vs
Demand (demand)
Supply
2000s
Argentina
2.4
Bolivia
5.1
Brazil
4.4
Chile
1.1
Colombia
6.0
Costa Rica
3.4
Ecuador
3.4
El Salvador
-0.3
Honduras
2.3
Mexico
2.2
Nicaragua
6.6
Panama
2.4
Paraguay
6.1
Peru
3.8
Uruguay
1.1
Venezuela
4.2
Mean
3.4
Source: Gasparini et al., 2011
Demand
2000s (σ=2) 2000s (σ=3)
-2.3
-4.7
-4.1
-8.7
-1.9
-5.1
-2.7
-4.7
2.1
0.1
3.0
2.8
-3.0
-6.3
-0.4
-0.5
-1.4
-3.3
-3.5
-6.3
-7.2
-14.1
-2.2
-4.4
-5.2
-10.8
-1.8
-4.6
-0.6
-1.4
-5.4
-10.3
-2.3
-5.1
Mexico: Relative returns and relative supply, 19892010
(High school and more vs. secondary or less; Campos et al.)
Summing up…
• Declining hourly earnings inequality
– In Tinbergen’s race between education and
technology, education might have the upper hand
However,
-Evidence that it is supply-driven may not be robust
enough
-Role of institutional factors and‘degraded tertiary’
hypothesis need to be analyzed more systematically
What do we know about capital income?
• Household Surveys are not a good source
• Use Tax Returns as suggested by Top Incomes
Project (Alvaredo, Atkinson, Piketty, Saez)
• Results for Colombia are very telling (Alvaredo
and Londono)
24,0
Income share (%)
22,0
20,0
18,0
16,0
14,0
Top 1%
12,0
FIGURE 3
Top 1% income share in Colombia, 1993-2010
Source: Table A4.
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
10,0
How redistributive are Latin American
governments?
• Decomposition of changes in inequality by income
source show that transfers is, on average, the second
most important proximate determinant of decline in
overall inequality
• Benefit and tax incidence analysis for 11 countries
• www.commitmentoequity.org
Tracing the Gini coefficient from Market to Final Income
0.575
Argentina
Bolivia
0.525
Brazil
Gini
Chile
Colombia
0.475
Costa Rica
Guatemala
Mexico
Paraguay
0.425
Peru
Uruguay
0.375
Mercado
Mercado Neto
Disponible
Post-Fiscal
Final
Tracing the Headcount Ratio from
Market to Final Income
Cash Transfers and Poverty Reduction
80.0
$2.50 PPP Poverty Line
70.0
Argentina
60.0
Bolivia
50.0
Brazil
40.0
Guatemala
Mexico
30.0
Paraguay
20.0
Peru
10.0
Uruguay
0.0
Reduction in Headcount (%)
Effectiveness Indicator
21
Reduction in inequality with respect to Market
Income Gini coefficient, Social Spending, and
Redistributive Effectiveness
Argen na-Reduc on in Inequality:
Market (blue) vs. Redistribu on (red)
Chart Title
market
redistrib
43%
124%
-24%
58%
2003-06
2006-09
Argen na-Reduc on in Poverty:
Market (blue) vs. Redistribu on (red)
market
110%
-10%
2003-06
redistrib
88%
12%
2006-09
That’s all folks…
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Deconstructing the Decline in Inequality Nora Lustig Tulane University