Social Spending, Taxes and Income Redistribution in Uruguay

Abstract

How much redistribution does Uruguay accomplish through social spending and taxes? How progressive are revenue collection and social spending? A standard fiscal incidence analysis shows that Uruguay achieves a nontrivial reduction in inequality and poverty when all taxes and transfers are combined. In comparison with other five countries in Latin America, it ranks first (poverty reduction) and second (inequality reduction), and first in terms of poverty reduction effectiveness and third in terms of overall (including transfers in kind) inequality reduction effectiveness. Direct taxes are progressive and indirect taxes are regressive. Social spending on direct transfers, contributory pensions, education and health is quite progressive in absolute terms except for tertiary education, which is almost neutral in relative terms.

Income redistribution and inequality in the Mexican tax-benefit system

“…In Latin America, Uruguay seems to be a special case where a significant inequality reduction has come from both taxes and benefits combined (Bucheli et al, 2014). Nevertheless, in México, our evidence shows a progressive fiscal system with poor results for fighting poverty and raising revenues.…”

“…This can be for instance, by improving the existing programs to better target the poor, or also, by simplifying that tax system. 6 Slovenian means-tested benefits are: child benefit, unemployment assistance, scholarships and pension supplement; non-means tested transfers are: birth grants, parental allowance, childcare supplement, large-family supplements, unemployment wage compensation, and disability supplement. Croatian means-tested benefits are basic: support allowance, child allowance and unemployment benefit; non-means tested transfers are: sick-leave benefit, maternity and layette supplement, support for rehabilitation, and employment of people with disabilities.…”

Fiscal Redistribution in Latin America Since the Nineteenth Century

“…Nonetheless, the available measures offer the right qualitative contrasts, even when they overstate the redistributive part of public pensions. 15 DeFerranti et al (2004), Lindert et al (2006), Braceda et al (2009), Lustig et al (2011, Buchele et al (2013), Sauma and Trejos (2014), and Public Finance Review (2014). Lustig et al (2011), Sauma andTrejos (2014, Fig.…”

“…Lustig et al (2011), Sauma andTrejos (2014, Fig. 6) and Buchele et al (2013) The definitions of redistribution results are • "Clearly progressive" = Delivers more dollars per household to the poorer (lower quintiles) than to the richer. Thus it would be progressive even if financed by a poll tax…”

“…The distribution of household income per capita by decile, year 2000 is from WIID2c, downloaded January 2014, www.wider.unu.edu/research/Database/en_GB/wiid/. The fiscal incidence assumptions are borrowed from Buchele et al (2013). See the calculations in http://gpih.ucdavis.edu, the folder for "Government budget historical series," under the heading "Latin American fiscal redistribution," the file "Uruguay quintile fiscal effects 1910-2008.…”