The three Latin American countries in the sample (Brazil, Colombia and Guatemala) all share extremely high levels of inequality, with Gini coefficient for private sector incomes above 0.50. In Guatemala, the tax and transfer systems lead only to a negligible reduction in inequality, while it actually marginally increases inequality in Colombia (since transfers disproportionately benefit the richer segments of society). This is
in line with a recent study on La n America, that shows that the region’s tax and transfer systems only slightly reduce the Gini coefficient (on average by 0.02 points). The study therefore concludes that “a good deal of La n America’s excess inequality over international levels reflects the failure of the region’s fiscal systems to perform their redistributive functions”. With an average Gini coefficient for disposable income of 0.52, the region stands out as one of the most unequal in the world. One approach to rectify this failure is to target social transfers at the poorest, as done under the “Bolsa familia” programme in Brazil and similar schemes in other countries. The data presented in Figure 1 show that transfers indeed reduce Brazil’s Gini coefficient by 0.055, and the tax structure leads to a further decrease in inequality.
Note