Nora Lustig

Crises and the Poor: Socially Responsible Macroeconomics

Macroeconomic crises not only affect the current living standards of the poor, but their ability to grow out of poverty. This paper presents evidence on the impact of economic crisis on poverty and inequality in Latin America. Crises not only result in higher poverty rates but may cause irreversible damage to the human capital of the poor. In light of this evidence, the author concludes that crisis avoidance and a propoor response to crisis should be a major component of a poverty reduction strategy. Therefore, the role of exchange rate policy, capital controls and counter-cyclical fiscal policy in generating or avoiding crisis analyzed. Responses to macroeconomic crisis are assessed by considering the effects of different policy combinations, the use of safety nets and the composition of fiscal adjustment to protect the income of the poor in the face of macroeconomic adjustment. The main lesson is that socially responsible macroeconomic policy can protect the poor during times of crisis and simultaneously contribute to lower chronic poverty.

Declining Inequality in Latin America in the 2000s: The Cases of Argentina, Brazil, and Mexico

Between 2000 and 2010, the Gini coefficient declined in 13 of 17 Latin American countries. The decline was statistically significant and robust to changes in the time interval, inequality measures, and data sources. In-depth country studies for Argentina, Brazil, and Mexico suggest two main phenomena underlie this trend: a fall in the premium to skilled labor and more progressive government transfers. The fall in the premium to skills resulted from a combination of supply, demand, and institutional factors. Their relative importance depends on the country.

The Microeconomics of Income Distribution Dynamics in East Asia and Latin America

This volume presents a collection of studies on the dynamics of income inequality based on micro data. Using a simple but powerful empirical methodology, the authors analyze the roles of prices, occupational choice, and educational choice in accounting for household income and its contribution to inequality. It casts doubt on the grand theories of growth and income inequality that have dominated discussions in development economics. It paves the way for a full-blown, micro-based general equilibrium theory of income determination and income inequality.

Coping with austerity : poverty and inequality in Latin America

Statistics on poverty and inequality in Latin America are rudimentary and often conflicting. Yet it is known that poverty became more widespread in the region during the last decade as it experienced economic decline. About 180 million people, or, two out of every five in the area, are now living in poverty - some 50 million more than in 1980. It is also known that income and wealth are far more unequally distributed in Latin America than in most other developing regions. In this book, the contributors examine how poverty and inequality are - or are not - being addressed in each country. They also explore the viability of alternative approaches to combatting poverty and to reducing inequality. They explain that virtually no one denies that governments must take a leading role in the provision of health, education and other social services. Yet there are sharp debates - over the compatibility of social spending with economic adjustment and stabilization; the priority of social exependitures in relation to other governmental spending; the allocation of funds among different social programmes; who should, and should not, benefit; and who should pay the costs.

North American Free Trade: Assessing the Impact

This study features six essays which review the available literature on the effects of NAFTA on growth, employment, income distribution, specific industries, and agriculture in the three countries, as well as the implications for the world trading system and non-NAFTA countries.

Declining Inequality in Latin America: Some Economics, Some Politics

Latin America is known to have income inequality among the highest in the world. That inequality has been invoked to explain low growth, poor education, macroeconomic volatility, and political instability. But new research shows that inequality in the region is falling. In this paper, we summarize recent findings on the decline in inequality across the region, analyze how the type of political regime (populist, social democratic, right of center) matters to the sustainability of the decline, and investigate the relationship between changes in inequality and changes in the size of the middle class in the region. We conclude with some questions about whether and how changes in income distribution and in middle-class economic power will affect the politics of distribution in the future.

Do we know how much poverty there is

This paper tests the sensitivity of poverty indexes to the choice of adult equivalence scales, assumptions about the existence of economies of scale in consumption, methods for treating missing and zero incomes, and different adjustments to handle income miss reporting. We also perform sensitivity analysis to the use of different poverty lines and poverty indexes, which are issues that have been much more explored in the literature. The sensitivity analysis is applied to household survey data from 17 Latin American countries, which include 92% of the population in the region. By varying these parameters within reasonable boundaries, we find that the proportion of poor could be said to be either 12.7 percent or 65.8 percent of the total population. Additionally, the ranking of countries with respect to poverty is also highly sensitive. This points to the need of justifying and being explicit about the underlying choices and definitions behind poverty statistics, and to the need of performing sensitivity analysis illustrating the menu of options that can answer the question of how much poverty there is.

Rising Inequality in Mexico: Household Characteristics and Regional Effects

We use an empirical framework to identify the contributions of microeconomic factors to the sharp rise in household (per capita) income inequality in Mexico between 1984 and 1994. Results indicate that changes in returns to household characteristics, in particular changes in returns to education, are responsible for about half of the increase in the Gini coefficient. The deteriorating conditions in rural areas relative to the urban areas and of the southern region relative to other regions account for another fourth of the increase in the Gini.

The impact of taxes and social spending on inequality and poverty in Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay

How much redistribution and poverty reduction is being accomplished in Latin America through social spending, subsidies, and taxes? Standard fiscal incidence analyses applied to Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay using a comparable methodology yields the following results. Direct taxes and cash transfers reduce inequality and poverty by nontrivial amounts in Argentina, Brazil, and Uruguay but less so in Bolivia, Mexico, and Peru. While direct taxes are progressive, the redistributive impact is small because direct taxes as a share of GDP are generally low. Cash transfers are quite progressive in absolute terms, except in Bolivia where programs are not targeted to the poor. In Bolivia and Brazil, indirect taxes more than offset the poverty-reducing impact of cash transfers. When one includes the in-kind transfers in education and health, valued at government costs, they reduce inequality in all countries by considerably more than cash transfers, reflecting their relative size.

Deconstructing the Decline in Inequality in Latin America

Inequality in Latin America unambiguously declined in the 2000s. The Gini coefficient fell in 16 of the 17 countries where there are comparable data, and the change was statistically significant for all of them. Existing studies point to two main explanations for the decline in inequality: a reduction in hourly labor income inequality, and more robust and progressive government transfers. Available evidence suggests that it is the skill premium -- or, more precisely, the returns to primary, secondary, and tertiary education vs. no schooling or incomplete primary schooling -- that drives the decline in hourly labor income inequality. The causes behind the decline in returns to schooling, however, have not been unambiguously established. Some studies find that returns fell because of an increase in the supply of workers with more educational attainment; others, because of a shift in demand away from skilled labor.