Taxation and Redistribution

 

Gain insights about the region’s fiscal dynamics and its implications for development in our working papers by clicking on the links below:

Fiscal Policy, Income Redistribution, and Poverty Reduction in Latin America

Health systems and health inequalities in Latin America

Calculating the redistributive impact of pension systems in LAC

Cash transfers, poverty, and inequality in Latin America and the Caribbean

Preferences for redistribution in Latin America

 

Some key findings:

• While LAC fiscal systems consistently reduce income inequality, they do not necessarily reduce poverty. In fact, in nine out of the 18 LAC countries, fiscal policies increase poverty, primarily due to consumption taxes on basic goods (Lustig et al., 2023).
• In most countries of the region, formal workers are covered by a well-funded contributory scheme with a distinct network of healthcare providers, while informal workers rely on a non-contributory scheme, leading to a segmentation of health coverage based on labor market status (Bancalari et al., 2023).
• The actual incidence of pension systems is far less progressive than their design implies. Given the levels and patterns of informal work in LAC, a much higher share of high-income workers is eligible for pension benefits. This means that the incidence of built-in subsidies is highly concentrated in the upper part of the income distribution (Altamirano et al., 2023).
• Non-contributory cash transfer programs reduce the poverty rate by 1.9 percentage points, the poverty gap by 2.0 pp, and the Gini coefficient by 0.7 pp. The largest changes are recorded in Argentina, Suriname and Panama (Stampini et al., 2023).
• The social contract in Latin America is fractured: the perception of government and elite corruption is rampant, and there is a strong sense of mistrust among citizens. This hampers support for social programs that help the most vulnerable (Busso et al., 2023).