EL TRIMESTRE ECONÓMICO 335494
personal income and consumption taxes, and the benets from cash transfers,
consumption subsidies, and government spending on education and health. This
process yields the pre-scal and post-scal income concepts of interest. These
income concepts, in turn, are used to calculate the corresponding indicators of
inequality and poverty. Thus, one can estimate, for each country, the impact of
the scal system and each of its components on inequality and poverty. Since the
methodology that was applied is the same, results are comparable across countries.
Results: The countries that redistribute the most are Argentina, Brazil, Costa Rica,
and Uruguay. Guatemala, Honduras, and Peru are the countries that redistrib-
ute the least. Fiscal policy reduces extreme (income) poverty in twelve out of
the sixteen countries. The incidence of poverty after taxes, subsidies, and cash
transfers, however, is higher than market income poverty in Bolivia, Guatema-
la, Honduras, and Nicaragua, even though scal policy reduces inequality in
these four countries. Contributory pensions have a heterogeneous effect on in-
equality and, contrary to some expectations, their impact is equalizing in nine
of the countries. In the sixteen countries, spending on pre-school and primary
education is equalizing and pro-poor (per capita benets decline with income
per capita). Spending on secondary education is always equalizing; it is also pro-
poor in some of the countries. Spending on tertiary education is never pro-poor
but it is equalizing in all the countries except for Guatemala. Spending on health
is always equalizing but pro-poor only in some countries.
Conclusions: Latin America presents a great deal of heterogeneity in the size of the
state and the countries’ capacity to use their scal power to reduce inequality and
poverty. A higher share of social spending (to GDP) is associated with a larger redis-
tributive effect but countries with similar, or even lower, shares of social spending
show heterogeneous redistributive effects implying that other factors beyond size
such as the composition and targeting of social spending (and taxes) are at play.
It is important to emphasize that a higher redistributive effect is not necessarily
a desirable outcome since in this article there is no estimation of the impact of
redistributive policy on scal sustainability and efciency. In some countries, the
burden of consumption taxes is such that a portion of the poor are net payers into
the scal system (before receiving “in kind” transfers in education and health).
Governments should examine whether this undesirable effect could be avoided,
or at least reduced, through an expansion of targeted cash transfers and/or re-
duction in the consumption taxes that are particularly burdensome for the poor.
Key words: scal incidence, inequality, poverty, taxes, transfers, Latin America.
JEL Classication: D31, H22, I38.