InequalIty in Focus Taxes , Transfers , and Income Redistribution in Latin America

H ow much reduction in inequality and poverty does latin america accomplish through taxes and transfers? How progressive1 are revenue-collection and social-spending patterns? an in-depth fiscal incidence analysis applied to argentina’s urban areas, where three-fourths of the population lives, as well as to Bolivia, Brazil, Mexico, Peru, and uruguay, finds the following: 1. the extent of income redistribution and poverty reduction varies significantly across countries. 2. there is little correlation between government size and the extent and effectiveness of redistribution and poverty reduction. 3. large-scale targeted cash transfers that cover a high proportion of the poor can achieve significant reductions in extreme poverty. 4. at present, personal income taxes achieve little in the form of redistribution. 5. When indirect taxes are taken into account, the net income of the poor and the near poor can be lower than it was before taxes and cash transfers. 6. the poor and near-poor benefit substantially from in-kind transfers in education and health. these in-kind transfers are quite progressive in all countries studied.2