OECD Development Centre Working Papers

ISSN :
1815-1949 (online)
DOI :
10.1787/18151949
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The OECD Development Centre links OECD members with developing and emerging economies and fosters debate and discussion to seek creative policy solutions to emerging global issues and development challenges. This series of working papers is intended to disseminate the OECD Development Centre’s research findings rapidly among specialists in the field concerned. These papers are generally available in the original English or French, with a summary in the other language.
 

How Redistributive is Fiscal Policy in Latin America?

The Case of Chile and Mexico You or your institution have access to this content

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Author(s):
Barbara Castelletti1
Author Affiliations
  • 1: OECD, France

Publication Date
24 July 2013
Bibliographic information
No.:
318
Pages
39
DOI
10.1787/5k424rnjl424-en

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This paper looks at the incidence of fiscal policy on the income distribution for Chile and Mexico. Notably by broadening the income concept to account for in-kind benefits and taxes, this paper provides a full picture of the effect of fiscal policy on reducing income inequality. The contrast between the estimates for Chile and Mexico and the rest of OECD countries provides an overall snapshot of income distribution of high inequality countries vis-à-vis advanced economies. The breakdown of the Gini coefficient at a detailed level of policy instruments also enables us to identify the main channels of income inequality reduction and shows how these results differ across countries. Our results for Chile and Mexico suggest that fiscal policy significantly benefits the poorest income groups, mainly through in-kind services such as education and health care. Nevertheless, when compared with outcomes in high-income countries, the effectiveness of fiscal policy in reducing inequality is still limited. Cash transfers (especially those for old-age programmes), direct taxation and, to some extent, a higher market inequality are the main factors behind this difference.
Keywords:
Latin America, tax-benefit analysis, income distribution, fiscal policy
JEL Classification:
  • D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions
  • H20: Public Economics / Taxation, Subsidies, and Revenue / General
  • H31: Public Economics / Fiscal Policies and Behavior of Economic Agents / Household
  • H40: Public Economics / Publicly Provided Goods / General
  • I30: Health, Education, and Welfare / Welfare and Poverty / General
  • I32: Health, Education, and Welfare / Welfare and Poverty / Measurement and Analysis of Poverty
  • I38: Health, Education, and Welfare / Welfare and Poverty / Government Policy; Provision and Effects of Welfare Programs