The paper explores the relationship between political violence and ‘horizontal’ inequality in ethnically‐divided countries in Latin America. The cases studied are Bolivia, Guatemala and Peru. Preliminary results are reported on the measurement of horizontal inequality, or that between groups, defined in cultural, ethnic and/or religious terms. The Latin American cases are shown to be often more unequal than the cases from Africa and Asia included in the wider study of which the work forms a part. The complex relationship between such inequality, ethnicity and political violence is explored historically. Ethnicity is today rarely a mobilising factor in violence in the Latin American cases, but the degree of inequality based on ethnicity is shown to be highly relevant to the degree of violence which results once conflict is instigated. History explains why.
We apply a standard tax and benefit incidence analysis to estimate the impact on inequality and poverty of direct taxes, indirect taxes and subsidies, and social spending (cash and food transfers and in-kind transfers in education and health). The extent of inequality reduction induced by direct taxes and transfers is rather small (2 percentage points on average) especially when compared with that found in Western Europe (15 percentage points on average). What prevents Argentina, Bolivia and Brazil from achieving similar reductions in inequality is not the lack of revenues but the fact that they spend less on cash transfersespecially transfers that are progressive in absolute terms-as a share of GDP. Indirect taxes result in that net contributors to the fiscal system start at the fourth, third and even second decile on average, depending on the country. When in-kind transfers in education and health are added, however, the bottom six deciles are net recipients. The impact of transfers on inequality and poverty reduction could be higher if spending on direct cash transfers that are progressive in absolute terms is increased, leakages to the nonpoor are reduced and coverage of the extreme poor by direct transfer programs is expanded.
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