Good news about Latin American Inequality

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In a new working paper on Latin American inequality called “Deconstructing the Decline in Inequality in Latin America,” Nora Lustig, Luis Lopez-Calva, and Eduardo Ortiz-Juarez find that the weighted average of the Gini coefficient in Latin America fell from .548 in the late 1990s to .488 a decade later.  As you can see from the figure, all countries in the region (except Honduras) experienced a decline in inequality. The authors find that the reductions are both statistically significant and quantitatively important.

Latin America is one of the most unequal regions in the world, and it is heartening to read that the drop in inequality accounts for 1/3 of the decrease in extreme poverty in the past decade.

So what caused this reduction in inequality?  This is the tough part.  The literature has put forth two main potential causes behind the phenomena:  a reduction in hourly wage inequality, and larger more progressive government transfers.  The evidence isn’t conclusive and there doesn’t seem to be a single explanation behind it for the entire region.  This seems totally reasonable to me; given how very different the countries are, it’s hard to believe there is an argument that explains inequality reduction in all of them.  But definitely check out the paper, because they do a really nice job of reviewing the literature and pointing to possible clues for individual countries.

By the way, does anyone know what is going on with Honduran inequality?

One thought on “Good news about Latin American Inequality

  1. If you want a single explanation across the region, it’s probably that wealth disparity has been on the political agenda, while red-baiting has generally been off the table. So pragmatic socialist measures of whatever sort, like progressive taxation and cash transfers, have become acceptable.

    But I also question the Gini coefficient. It can get lower through reduced poverty, but also by having rich people conceal their wealth and income or shift them offshore. In countries moving toward progressive taxation, or with more revolutionary proposals, the disappearance of money off the rolls could start to account for a serious part of the change in Gini coefficient. I’m not sure if economists account for that in these statistics, but I don’t think so.

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