Phillippe G. Leite

The Rise and Fall of Brazilian Inequality: 1981-2004

Measured by the Gini coefficient, income inequality in Brazil rose from 0.57 in 1981 to 0.63 in 1989, before falling back to 0.56 in 2004. This latest figure would lower Brazils world inequality rank from 2nd (in 1989) to 10th (in 2004). Poverty incidence also followed an inverted U-curve over the past quarter century, rising from 0.30 in 1981 to 0.33 in 1993, before falling to 0.22 in 2004. Using standard decomposition techniques, this paper presents a preliminary investigation of the determinants of Brazils distributional reversal over this period. The rise in inequality in the 1980s appears to have been driven by increases in the educational attainment of the population in a context of convex returns, and by high and accelerating inflation. While the secular decline in inequality, which began in 1993, is associated with declining inflation, it also appears to have been driven by four structural and policy changes which have so far not attracted sufficient attention in the literature, namely sharp declines in the returns to education; pronounced rural-urban convergence; increases in social assistance transfers targeted to the poor; and a possible decline in racial inequality. Although poverty dynamics since the Real Plan of 1994 have been driven primarily by economic growth, the decline in inequality has also made a substantial contribution to poverty reduction.

Ex-ante Evaluation of Conditional Cash Transfer Programs: The Case of Bolsa Escola

Cash transfers targeted to poor people, but conditional on some behavior on their part, such as school attendance or regular visits to health care facilities, are being adopted in a growing number of developing countries. Even where ex-post impact evaluations have been conducted, a number of policy-relevant counterfactual questions have remained unanswered. These are questions about the potential impact of changes in program design, such as benefit levels or the choice of the means-test, on both the current welfare and the behavioral response of household members. This paper proposes a method to simulate the effects of those alternative program designs on welfare and behavior, based on microeconometrically estimated models of household behavior. In an application to Brazils recently introduced federal Bolsa Escola program, the authors find a surprisingly strong effect of the conditionality on school attendance, but a muted impact of the transfers on the reduction of current poverty and inequality levels

Trade Liberalization, Employment Flows, and Wage Inequality in Brazil

Using nationally representative, economywide data, this paper investigates the relative importance of trade-mandated effects on industry wage premia; industry and economywide skill premia; and employment flows in accounting for changes in the wage distribution in Brazil during the 1988-95 trade liberalization. Unlike in other Latin American countries, trade liberalization appears to have made a significant contribution toward a reduction in wage inequality. These effects have not occurred through changes in industry-specific (wage or skill) premia. Instead, they appear to have been channeled through substantial employment flows across sectors and formality categories. Changes in the economywide skill premium are also important.

Beyond Oaxaca-Blinder : accounting for differences in household income distributions across countries

The authors develop a microeconometric method to account for differences across distributions of household income. Going beyond the determination of earnings in labor markets, they also estimate statistical models for occupational choice and for conditional distributions of education, fertility, and nonlabor incomes. The authors import combinations of estimated parameters from these models to simulate counterfactual income distributions. This allows them to decompose differences between functionals of two income distributions (such as inequality or poverty measures) into shares because of differences in the structure of labor market returns (price effects), differences in the occupational structure, and differences in the underlying distribution of assets (endowment effects). The authors apply the method to the differences between the Brazilian income distribution and those of Mexico and the United States, and find that most of Brazils excess income inequality is due to underlying inequalities in the distribution of two key endowments: access to education and to sources of nonlabor income, mainly pensions.

Brazil within Brazil: Testing the Poverty Map Methodology in Minas Gerais

The small-area estimation technique developed for producing poverty maps has been applied in a large number of developing countries. Opportunities to formally test the validity of this approach remain rare due to lack of appropriately detailed data. This paper compares a set of predicted welfare estimates based on this methodology against their true values, in a setting where these true values are known. A recent study draws on Monte Carlo evidence to warn that the small-area estimation methodology could significantly over-state the precision of local-level estimates of poverty, if underlying assumptions of spatial homogeneity do not hold. Despite these concerns, the findings in this paper for the state of Minas Gerais, Brazil, indicate that the small-area estimation approach is able to produce estimates of welfare that line up quite closely to their true values. Although the setting considered here would seem, a priori, unlikely to meet the homogeneity conditions that have been argued to be essential for the method, confidence intervals for the poverty estimates also appear to be appropriate. However, this latter conclusion holds only after carefully controlling for community-level factors that are correlated with household level welfare.

Meeting the Millennium Development Goals in Brazil: Can Microeconomic Simulations Help?

The authors investigate whether micro-simulation techniques can shed light on the types of policies that should be adopted by countries wishing to meet their Millennium Development Goals. They compare two families of micro-simulations. The first family of micro-simulations decomposes required poverty changes into a change in the mean and a reduction in inequality. Although it highlights the importance of inequality reduction, it appears to be too general to be of much use for policymaking. The second family of micro-simulations is based on a richer model of behavior in the labor markets.It points to the importance of combining different policy options, such as educational expansion and targeted conditional redistribution schemes, to ensure that the poorest people in society are successfully reached. But the absence of market equilibria in these statistical models, as well as the strong stability assumptions which are implicit in their use, argue for extreme caution in their interpretation.

Policy Options for Meeting the Millennium Development Goals in Brazil: Can Micro-Simulations Help?

The authors investigate whether micro-simulation techniques can shed light on the types of policies that should be adopted by countries wishing to meet their Millennium Development Goals. They compare two families of micro-simulations. The first family of micro-simulations decomposes required poverty changes into a change in the mean and a reduction in inequality. Although it highlights the importance of inequality reduction, it appears to be too general to be of much use for policymaking. The second family of micro-simulations is based on a richer model of behavior in the labor markets. It points to the importance of combining different policy options, such as educational expansion and targeted conditional redistribution schemes, to ensure that the poorest people in society are successfully reached. But the absence of market equilibria in these statistical models, as well as the strong stability assumptions which are implicit in their use, argue for extreme caution in their interpretation.

How Do Ex Ante Simulations Compare with Ex Post Evaluations? Evidence from the Impact of Conditional Cash Transfer Programs

This paper compares the ex ante simulation of the impacts of conditional cash transfer programs against the ex post estimates of impacts obtained from experimental evaluations. Using data on program-eligible households in treatment areas from the same baseline surveys that are used for experimental evaluations of conditional cash transfer programs in Mexico and Ecuador, the authors use a micro-simulation model to derive ex ante estimates of the impact of the programs on enrollment rates and poverty. The estimates reveal that ex ante predictions of certain impacts of conditional cash transfer programs match up well against the benchmark estimates of ex post experimental studies. The findings seem to support the use of this model to assess the potential impact and cost efficiency of a conditional cash transfer program ex ante, in order to inform decisions about how the program would be designed.