The Impact of the Tax System and Social Spending in Income Redistribution and Poverty Reduction in Latin America

How much redistribution and poverty reduction is being accomplished through the tax system and social spending in Latin America? This paper summarizes results from applying a comparable fiscal incidence analysis to nine countries: Bolivia, Brazil, Costa Rica, Ecuador, El Salvador, Guatemala, Mexico, Peru, and Uruguay. Using the Gini coefficient as an indicator, Brazil lowers income inequality through direct taxes and transfers the most and Guatemala lowers it the least. Public spending in education and health have higher equalizing effects than other transfers. Adding the effect of indirect taxes leaves poverty higher than market income poverty in Bolivia, Brazil, and Guatemala.