Taxes, Social Spending, Inequality and the Middle Class in Latin America Nora Lustig Tulane University Nonresident Fellow CGD and IAD LASA Washington, DC May 30,2013
www.commitmentoequity.org 2
CEQ Authors Argentina: Nora Lustig and Carola Pessino Bolivia: George Gray Molina, Wilson Jimenez, Veronica Paz and Ernesto Yañez Brazil: Sean Higgins and Claudiney Pereira Guatemala: Maynor Cabrera and Hilcias Moran Mexico: John Scott Peru: Miguel Jaramillo Uruguay: Marisa Bucheli, Nora Lustig, Maximo Rossi and Florencia Amabile 3
Outline Socioeconomic groupings used in these studies Where in the distribution is the middle-class? Share of population and income received by middle class Fiscal Incidence: Methodology and a sampler of results Incidence of net taxes for middle-class What share of government services in education go to the middle-class: tertiary education 4
Socioeconomic Groups (Lines in US ppp dollars) Extreme Poor: Below $2.50/ day Moderate Poor: From $2.50 to below $4/day Vulnerable: From $4 to $10/day Middle-class: From $10 to $50/day Rich : Above $50/day 5
Where in the Distribution is the Middle Class? Arg (urban): Deciles 7 10 Bol: Deciles 8 10 Bra: Deciles 6-10 Gua: Deciles 9 & 10 Mex: Deciles 7 10 Per: Deciles 8 10 Ury: Deciles 5 10 => Not in the middle of the distribution (except for Uruguay, where median income earner will be included in our definition of middle class) 6
Population and Income Shares of the Middle Class Arg (urban): 34% of pop; 62% of Y Bol: 28% of pop; 54% of Y Bra: 35% of pop; 5 of Y Gua: 14% of pop; 4 of Y Mex: 35% of pop; 55 % of Y Per: 32% of pop; 55% of Y Ury: 54% of pop; 59% of Y 7
Methodology: Standard Incidence Analysis Pre-tax/pre-transfer income of unit h, or I h Taxes/transfers programs T i Allocators of program i to unit h, or S ih (or the share of tax/program i borne/received by unit h) Then, post-tax/post-transfer income of unit h (Y h ) is: Y h = I h - i T i S ih
Standard Fiscal Incidence Analysis Pre-tax and benefits incomes Allocators of taxes and benefits personal income and consumption taxes social spending: cash transfers and in-kind transfers (education and health) Consumption subsidies Post-tax and benefits incomes Countries (yr of Survey): Argentina (2009), Bolivia (2007), Brazil (2009), Guatemala (2009), Mexico (2008), Peru (2009), Uruguay (2009), Paraguay (2010) 9
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How redistributive are governments in Latin America? How much inequality and poverty reduction is being accomplished through social spending, subsidies and taxes? Who bears the burden of taxes and receives the benefits from social spending? How are socioeconomic groups affected/ benefited by taxes and social spending? 11
REDISTRIBUTION Tracking the Gini coefficient from Market to Final Income
POVERTY REDUCTION Tracking the Headcount Ratio from Market to Post-Fiscal Income
Incidence of Taxes and Cash Transfers Net Change in Income after Direct and Indirect Taxes and Transfers by Decile Bolivia Brazil Mexico Peru Uruguay 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 14
Heterogeneity in fiscal redistribution across the region; focus on the poor in lower-middle income countries (ca. 2009) Fiscal incidence (percent difference with respect to market income) 8 8 8 6 6 6 4 Bolivia Guatemala Peru 4 4 2 2 2-2 8 <$4 $4-$10 $10-$50 >$50-2 8 <$4 $4-$10 $10-$50 >$50-2 8 <$4 $4-$10 $10-$50 >$50 6 6 6 4 Mexico Brazil Uruguay 4 4 2 2 2-2 -2 net indirect taxes direct cash transfers in-kind education in-kind health -2 15
D I S T R I B U T I O N % B E N E F I T S G O I N G T O E A C H I N C O M E G R O U P y < 2. 5 2.5 < y < 4 4 < y < 1 0 1 0 < y < 5 0 y > 5 0 T o t a l A R G E N T I N A ( 2 0 0 9 ) E d u c a t io n : T e r t ia r y 5. 0 % 4. 8 % 4 1. 2 % 4 8. 3 % 0. 6 % 1 0 0. 0 % I n c o m e s h a r e s 1. 2 % 2. 3 % 2 5. 7 % 6 2. 2 % 8. 6 % 1 0 0. 0 % P o p u l a t io n s h a r e s 1 3. 0 % 8. 9 % 4 2. 6 % 3 4. 4 % 1. 1 % 1 0 0. 0 % B O L I V I A ( 2 0 0 9 ) E d u c a t io n : t e r t ia r y 3. 6 % 8. 5 % 4 2. 5 % 4 3. 6 % 1. 8 % 1 0 0. 0 % I n c o m e s h a r e s 2. 4 % 4. 9 % 2 9. 2 % 5 3. 5 % 9. 9 % 1 0 0. 0 % P o p u l a t io n s h a r e s 1 5. 1 % 1 4. 2 % 4 1. 3 % 2 8. 4 % 1. 0 % 1 0 0. 0 % B R A Z I L ( 2 0 0 9 ) E d u c a t io n : t e r t ia r y 3. 3 % 3. 0 % 2 0. 3 % 5 7. 5 % 1 5. 9 % 1 0 0. 0 % I n c o m e s h a r e s 1. 6 % 2. 6 % 1 5. 8 % 4 9. 7 % 3 0. 4 % 1 0 0. 0 % P o p u l a t io n s h a r e s 1 5. 3 % 1 1. 3 % 3 3. 6 % 3 5. 3 % 4. 5 % 1 0 0. 0 % G U A T E M A L A ( 2 0 1 0 ) E d u c a t io n : t e r t ia r y 2. 5 % 4. 7 % 2 6. 0 % 6 6. 4 % 0. 3 % 1 0 0. 0 % I n c o m e s h a r e s 7. 8 % 1 1. 5 % 3 4. 7 % 3 9. 9 % 6. 0 % 1 0 0. 0 % P o p u l a t io n s h a r e s 2 9. 3 % 2 2. 2 % 3 4. 0 % 1 4. 1 % 0. 4 % 1 0 0. 0 % M E X I C O ( 2 0 0 8 ) E d u c a t io n : t e r t ia r y 2. 0 % 4. 7 % 2 9. 9 % 5 9. 7 % 3. 7 % 1 0 0. 0 % I n c o m e s h a r e s 1. 5 % 2. 9 % 2 0. 3 % 5 4. 9 % 2 0. 3 % 1 0 0. 0 % P o p u l a t io n s h a r e s 1 2. 4 % 1 1. 4 % 3 8. 3 % 3 5. 3 % 2. 6 % 1 0 0. 0 % P E R U ( 2 0 0 9 ) E d u c a t io n : t e r t ia r y 3. 6 % 8. 1 % 3 7. 2 % 4 9. 1 % 2. 1 % 1 0 0. 0 % I n c o m e s h a r e s 2. 3 % 4. 1 % 2 3. 5 % 5 5. 1 % 1 5. 1 % 1 0 0. 0 % P o p u l a t io n s h a r e s 1 5. 1 % 1 3. 4 % 3 7. 5 % 3 2. 0 % 1. 9 % 1 0 0. 0 % U R U G U A Y ( 2 0 0 9 ) E d u c a t io n : t e r t ia r y 9. 8 % 1 1. 1 % 3 8. 5 % 3 9. 5 % 1. 1 % 1 0 0. 0 % I n c o m e s h a r e s 0. 4 % 1. 1 % 1 0. 0 % 5 9. 3 % 2 9. 2 % 1 0 0. 0 % P o p u l a t io n s h a r e s 5. 1 % 6. 5 % 2 7. 8 % 5 3. 8 % 6. 8 % 1 0 0. 0 %
THANK YOU 17
What is CEQ? www.commitmentoequity.org 18
Led by Nora Lustig (Tulane University) and Peter Hakim (Inter- American Dialogue), the Commitment to Equity (CEQ) project is designed to analyze the impact of taxes and social spending on inequality and poverty, and to provide a roadmap for governments, multilateral institutions, and nongovernmental organizations in their efforts to build more equitable societies. CEQ/Latin America is a joint project of the Inter-American Dialogue (IAD) and Tulane University s Center for Inter-American Policy and Research (CIPR) and Department of Economics. The project has received financial support from the Canadian International Development Agency (CIDA), the Development Bank of Latin America (CAF), the General Electric Foundation, the Inter-American Development Bank (IADB), the International Fund for Agricultural Development (IFAD), the Norwegian Ministry of Foreign Affairs, the United Nations Development Programme s Regional Bureau for Latin America and the Caribbean (UNDP/RBLAC), and the World Bank. http://commitmenttoequity.org
CEQ WORKING PAPER SERIES http://www.commitmentoequity.org Commitment to Equity Assessment (CEQ): Estimating the Incidence of Social Spending, Subsidies and Taxes. Handbook, by Nora Lustig and Sean Higgins, CEQ Working Paper No. 1, July 2011; revised January 2013. Commitment to Equity: Diagnostic Questionnaire, by Nora Lustig, CEQ Working Paper No. 2, 2010; revised August 2012. The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia,Brazil, Mexico and Peru: A Synthesis of Results, by Nora Lustig, George Gray Molina, Sean Higgins, Miguel Jaramillo, Wilson Jiménez, Veronica Paz, Claudiney Pereira, Carola Pessino, John Scott, and Ernesto Yañez, CEQ Working Paper No. 3, August 2012. Fiscal Incidence, Fiscal Mobility and the Poor: A New Approach, by Nora Lustig and Sean Higgins, CEQ Working Paper No. 4, September 2012. Social Spending and Income Redistribution in Argentina in the 2000s: the Rising Role of Noncontributory Pensions, by Nora Lustig and Carola Pessino, CEQ Working Paper No. 5, January 2013. Explaining Low Redistributive Impact in Bolivia, by Verónica Paz Arauco, George Gray Molina, Wilson Jiménez Pozo, and Ernesto Yáñez Aguilar, CEQ Working Paper No. 6, January 2013. The Effects of Brazil s High Taxation and Social Spending on the Distribution of Household Income, by Sean Higgins and Claudiney Pereira, CEQ Working Paper No.7, January 2013. Redistributive Impact and Efficiency of Mexico s Fiscal System, by John Scott, CEQ Working Paper No. 8, January 2013. The Incidence of Social Spending and Taxes in Peru, by Miguel Jaramillo Baanante, CEQ Working Paper No. 9, January 2013. Social Spending, Taxes, and Income Redistribution in Uruguay, by Marisa Bucheli, Nora Lustig, Máximo Rossi and Florencia Amábile, CEQ Working Paper No. 10, January 2013. Social Spending, Taxes and Income Redistribution in Paraguay, Sean Higgins, Nora Lustig, Julio Ramirez, Billy Swanson, CEQ Working Paper No. 11, February 2013. High Incomes and Personal Taxation in a Developing Economy: Colombia 1993-2010, by Facundo Alvaredo and Juliana Londoño Vélez, CEQ Working Paper No. 12, March 2013. The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: An Overview, Nora Lustig, Carola Pessino and John Scott, CEQ Working Paper No. 13, April 2013. 20