The redistributive potential of taxation in Latin America

Abstract

This study uses internationally comparable methodologies to analyse the distributional impact of income tax and public transfers in 17 countries of Latin America. The results indicate that fiscal policy plays a limited role in improving the distribution of disposable income; the Gini coefficient decreased by barely three percentage points after direct fiscal action. On average, 61% of this reduction was due to public cash transfers and the rest to direct taxes, reflecting the pressing need for personal income tax to be strengthened. Analysis of household surveys gives an indication of the potential effects of tax reformsaimed at increasing the average effective tax rate of the top income decile. Allocating this additional revenue to targeted transfers would produce significant results. Consequently, tax reforms must be evaluated bearing in mind how those resources are used.

Personal income tax and income inequality in Ecuador between 2007 and 2011

“…Our data were also affected by tax evasion and avoidance issues. Because of the methodological differences, our results are likely to differ from other studies on the redistributive impact of personal income tax in Ecuador (Roca, 2009;Hanni, Martner and Podestá, 2015), based on data from household surveys.…”

“…The results displayed in table 1 show that the Suits index is positive over the period 2007-2011 (0.57 in 2007, 0.48 in 2009 and 0.46 in 2011), indicating that personal income tax is progressive in Ecuador. In addition, we follow Roca (2009) and Hanni, Martner and Podestá (2015) in calculating the share of total income taxes paid by each income decile. Like these authors, we find 10 Progressivity and redistribution indices are computed using the PROGRES module developed for Stata by Philippe Van Kerm and Andreas Peichl of the Luxembourg Institute of Socio-Economic Research (LISER) and the Centre for European Economic Research (Van Kerm and Peichl, 2007).…”

“…First, several recent studies have documented the decline of income inequality in most Latin American countries since the early 2000s (Gasparini and others, 2009;Cornia, 2010;López-Calva and Lustig, 2010;Lustig, López-Calva and Ortiz-Juárez, 2013;Cornia, 2014;ECLAC, 2012ECLAC, , 2013ECLAC, and 2014, mainly owing to (i) a decline in the skill premium, (ii) a decrease in the urban-rural wage gap, (iii) public transfer programmes such as conditional cash transfer programmes and (iv) favourable external conditions. In addition, while taxation had a negligible effect on income inequality in previous decades (Cornia, Gómez Sabaini and Martorano, 2011), a growing body of literature has documented the positive effect of the tax reforms of the 2000s in reducing income inequality in the region (Jiménez, Gómez Sabaini and Podestá, 2010;Roca, 2009;Cetrángolo and Gómez Sabaini, 2006;Cornia, Gómez Sabaini and Martorano, 2011;Hanni, Martner and Podestá, 2015). The present paper aims to contribute to this growing literature by assessing the redistributive impact of personal income tax in Ecuador.…”

Social protection systems, redistribution and growth in Latin America

“…In any event, the total effect of fiscal policy in the region, including transfers and taxes, is still very small by comparison with more developed countries. While both Organization for Economic Cooperation and Development (OECD) countries and 15 older members of the European Union have an average market income distribution (before taxes and transfers) close to the average for Latin America, they are significantly more effective at reducing the inequality this represents, with the Gini coefficient decreasing by 36% or 17 percentage points in OECD (19 percentage points in the 15 European Union countries) as a result of fiscal policy, while the average reduction in Latin America is only 6% (OECD, 2011;IMF, 2015;Hanni, Martner and Podestá, 2015). 18 In addition, and contrary to recent findings by Ostry, Berg and Tsangarides (2014), it is unclear that more unequal countries redistribute more in Latin America, as is the case with OECD countries.…”

Los Efectos De La Política Fiscal Sobre La Desigualdad

“…al., 2013. Si el índice de Reynolds-Smolensky es mayor que cero nos indica que el impuesto en cuestión ha ayudado a reducir la desigualdad, mientras que el signo positivo en el índice de Kakwani es indicativo del carácter progresivo del impuesto (Hanni et. al., 2015).…”