How much reduction in inequality and poverty does Latin America accomplish through taxes and transfers? How progressive are revenue-collection and social-spending patterns? This new 'Inequality in Focus' Brief from the World Bank's Poverty Reduction and Equity Department explores these questions.
An in-depth fiscal incidence analysis applied to Argentina’s urban areas, where three-fourths of the population lives, as well as to Bolivia, Brazil, Mexico, Peru, and Uruguay, finds the following:
- the extent of income redistribution and poverty reduction varies significantly across countries
- there is little correlation between government size and the extent and effectiveness of redistribution and poverty reduction
- large-scale targeted cash transfers that cover a high proportion of the poor can achieve significant reductions in extreme poverty
- at present, personal income taxes achieve little in the form of redistribution
- when indirect taxes are taken into account, the net income of the poor and the near poor can be lower than it was before taxes and cash transfers
- the poor and near-poor benefit substantially from in-kind transfers in education and health. These in-kind transfers are quite progressive in all countries studied