Declining Inequality in Latin America: Some Economics, Some Politics

Aug. 30, 2011, 4:07 p.m.

Declining Inequality in Latin America: Some Economics, Some Politics, by Nancy Birdsall, Nora Lustig and Darryl McLeod, looks at the recent decline in income inequality within Latin American and its potential link to political factors.  It also begs the question whether the decrease in inequality will create a larger middle class that will be politically active and participate in government.  Through investigating the different social programs throughout Latin America and the types of regimes (left populist, social democratic, and non-left governments) the authors make conclusions about the causes and longevity of the recent increases in social programs, such as education, health, and transfers.  They also look as potential causes of these changes.  The increase in democratic openings for the voices of the poor and rural citizens to come together and make demands is likely a strong reason for many of the social changes seen.

Political parties are, in short, critical in allowing the poor to solve the collective action problem they face in being adequately represented; otherwise even where they are a clear majority of citizens and even of voters, they will not influence policies that affect the distribution of income.

In a number of countries (but not in all) the new influence of political parties representing the poor may be what explains this shift in government spending – these came together after the year 2000 to reduce longstanding inequality in most countries of the region.

The authors use the change in levels seen in spending for health, education, and public social spending on transfers to determine the level of political will and key redistributive mechanisms.  The paper concludes that social democratic governments have created redistributive systems that are sustainable and a larger middle class is being developed, versus left populist governments that have not followed a sustainable path.

The abstract is provided below:

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.

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