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views or policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they represent. ADB does not guarantee the source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice, opinion, or view presented, nor does it make any representation concerning the same.

Markets, the State and Inclusive Growth in Latin America: Argentina, Brazil, Mexico and Peru1

Background Paper for the Asian Development Bank Conference and Project Social Inclusiveness in Asias Emerging Middle Income Countries 13 September 2011, Jakarta, Indonesia

Nora Lustig 2 Version: August 24, 2011; Revised: November, 2011

This paper is based on Lustig (2010) and draws from the project Markets, the state and the dynamics of inequality, sponsored by the United Nations Development Program and coordinated by Luis F. Lopez-Calva and Nora Lustig See Lopez-Calva and Lustig (2010), Lustig et al. (2011a and 2011b) and Lustig and Lopez-Calva (2011). 2 Nora Lustig is Samuel Z. Stone Professor of Latin American Economics at Tulane University (nlustig@tulane.edu) and non-resident fellow at the Center for Global Development and the Inter-American Dialogue.
1

Introduction Inequality in Latin America is very high allegedly the highest in the world and has been so for decades. In the last twenty-five years the distribution of income in Latin America has undergone two distinct trends. During the period comprised of the so-called lost decade of the 1980s and the structural reforms of the early 1990s, income inequality increased in most countries for which comparable data is available.3 Starting in the second half of the 1990s, inequality began to decline (Figure 1). Between 2000 and 2009, while inequality was rising in other parts of the world, it declined in 13 of the 17 countries for which comparable data exist at an average pace of close to 1 percent per year (Figure 2). Figure 1 Inequality in Latin America: 1990s-2000s (Gini coefficient)
Average (a) 0.550 0.540 0.530 0.523 0.520 0.510 0.500 0.490 0.480 Early 90s (12 countries) Mid-90s (15 countries) Late 90s (16 countries) Mid-2000s (17 countries) Late 2000s (17 countries) 0.509 0.503 0.502 0.520 0.518 0.540 0.537 0.530 0.524 Average (b)

Source: Lustig et al. (2011a), Figure 2. Note: Unweighted averages. (a) for all countries; (b) for countries in which inequality declined in the 2000s

See, for example, Altimir (2008) and Londoo and Szekely (2000). As we shall see in the next section, in the 1980s only six of the countries had national data while the remaining seven covered urban areas (and in some countries only the large metropolis).
3

Figure 2 Declining Inequality in Latin America by Country: 2000-2009 (annual % change in Gini)
2.50 2.02 2.00 1.50
Annual Percent Change

1.43 1.02

1.00 0.50 0.05 0.00 -0.50 -1.00 -1.50 -2.00 -1.71

Panama Chile Bolivia Brazil India Dominican Rep. Costa Rica South Africa El Salvador Guatemala Nicaragua Venezuela OECD-30 Peru Mexico Total 13 Honduras Total 17 Argentina Paraguay Ecuador Uruguay China

0.08

0.12

0.30

0.25

-0.36 -0.97 -0.77 -0.66 -0.66

-0.24

-0.05 -0.61 -0.90

-1.15 -1.07 -1.29 -1.23 -1.49

Source: Lustig et al. (2011a), Figure 3 Note: Solid bars represent cases where changes are statistically significant based on SEDLACs estimates. Data for Argentina and Uruguay are for urban areas only. In Uruguay, urban areas covered by the survey represent 80 percent of the total population; in Argentina, they represent 66 percent. The average change in the Gini for each country is calculated as the percentage change between the end year and the initial year divided by the number of years; the average for the total is the simple average of the changes by country (thirteen countries in which inequality fell). The years used to estimate the percentage change are as follows: Argentina (2009-00), Bolivia (2007-01), Brazil (2009-01), Chile (2009-00), Costa Rica (2009-01), Dominican Republic (2009-00), Ecuador (200903), El Salvador (2008-00), Guatemala (2006-00), Honduras (2009-01), Mexico (2008-00), Nicaragua (2005-01), Panama (2009-01), Paraguay (2009-02), Peru (2009-01), Uruguay (2009-00), and Venezuela (2006-00). Using the bootstrap method, with a 95 percent significance level, the changes were not found to be statistically significant for the following countries: Bolivia, Costa Rica, Guatemala, and Honduras (represented by grid bars in the figure). The years used in non-Latin American countries are as follows: China (1993-Mid 00s), India (1993-Mid 00s), South Africa (199308), and OECD-30 (Mid 80s-Mid 00s). Why did inequality decline in the 2000s? How important were market forces and state actions in explaining the evolution of inequality? Here I shall address these questions by synthesizing the results of four case studies: Argentina, Brazil, Mexico and Peru. Particular emphasis will be placed on the role played by returns to education and government transfers in accounting for the inequality dynamics. In addition, this paper will present some preliminary results of static fiscal incidence analysis to illustrate the relevance of transfers in reducing pre-fisc inequality and poverty. 3

The paper is organized as follows. Section 1 summarizes the main results for the countries under consideration. Section 2 presents a more in depth discussion of the role played by educational upgrading in explaining the observed trends in inequality. Section 3 includes a brief discussion of government transfers and their role in reducing inequality and poverty based on static incidence analysis. Section 4 will conclude. 1. Inequality Trends in Latin America in the 2000s: Argentina, Brazil, Mexico, and Peru In Argentina, Brazil, Mexico and Peru, earnings and non-labor income inequality declined in the 2000s. Declines in earnings inequality appear to be associated with less steep returns to higher education, which reduced earnings inequality, and much less so--or not at all--to changes in employment patterns.4 In contrast to the 1990s, that is, the premium to skills fell. Supply and demand forces appear to have been at play. Especially in Brazil, Mexico and Peru there have been notable changes in the composition of labor supply. As a result of an expansion of basic education,5 low-skilled labor has become relatively scarce and therefore can command relatively higher returns/wages. (Figure 3) In Argentina, the reduction in the premium to skills appears to be related not just to the change in the composition of skills but also to the employment effects of a booming economy and the wage-compressing effects of active labor market policies from a pro-union government. Figure 3 Composition of Labor Force by Schooling Level and Returns to Education: Argentina, Brazil, Mexico and Peru

Manacorda et al. (2010). Basic education goes from grades 1-9 in Argentina and Mexico; from 1-8 in Brazil; and, from 1-11 in Peru. The number of grades include what countries call as basic primary and secondary education.
4 5

Source: Lustig et al. (2011a), Figure 6. Based on SEDLAC (CEDLAS and The World Bank), March 2011 (http://sedlac.econo.unlp.edu.ar/eng/) Note: Categories by skill are formed by level of formal education. Educational levels correspond to completed primary school, lower- and upper-secondary school, and tertiary education. Data for are for urban areas only. In Argentina, urban areas covered by the survey represent 66 percent of the total population. In Argentina, complete primary school is achieved at 7 years, complete secondary school at 12 years, and tertiary education at 16 or more years of formal education; incomplete primary includes 6 years or less of education and no education. In Brazil, complete primary is achieved at 4 years, complete secondary at 11 years, and tertiary at 15 or more years of formal education; incomplete primary includes 3 years or less of education and no education. In Mexico, complete primary is achieved at 6 years, complete lower secondary at 9 years, complete upper secondary at 12 years, and tertiary at 15 or more years of formal education; incomplete primary includes 5 years or less of education and no education. In Peru, complete primary is achieved at 5 years, complete secondary at 11 years, and tertiary at 16 or more years of formal education; incomplete primary includes 4 years or less of education and no schooling. Shares were calculated for adults only (the age group from 25 years to 65 years). The boost in educational upgrading was probably due to higher spending per student in basic (primary and lower secondary) education and an effort to make education accessible in rural areas; both eased supply-side constraints. In addition, the conditional cash transfer programs Bolsa Familia (Brazil) and Progresa/Oportunidades (Mexico) reduced demand-side constraints by compensating poor households for schooling costs and the opportunity cost of childrens labor.6 The reduction in labor earnings inequalityand of the skill premium in particular contrasts with what occurred in the previous decades when returns to education for skilled workersi.e., the skill premium--rose more than for unskilled workers. There is some evidence that the increase in skill premium was linked to the opening up of the economies to international trade and foreign investment and concomitant skilled-biased technical change. The reduction of the skill premium in the late 1990s and the 2000s suggests that the unequalizing impact of skilled-biased technical change might have run its course. As a consequence, labor market dynamics became increasingly affected by the changes in the composition of labor supply by schooling level. A boost to educational upgrading resulted in an increase in the relative size of skilled workers (complete high school and above) in the labor force. The reduction in the inequality of non-labor income was a second major factor behind the decline in inequality. Non-labor income includes quite disparate income sources: returns to capital (interests, profits and rents), private transfers (for example, remittances) and public transfers. The contribution of changes in returns to capital tended to be small and unequalizing. In terms of
6

For more on Bolsa Familia and Oportunidades, see, for example Fiszbein et al. (2009).

private transfers, remittances proved to be equalizing and became even more so in the 2000s, because they closed the gap between rural and urban household per capita incomes particularly in the case of Mexico. However, what was new in the 2000s was the significant rise in importance of the equalizing contribution of government transfers. Large-scale (in terms of coverage) conditional cash transfers programs such as Bolsa Familia (Brazil) and Progresa/Oportunidades (Mexico) had remarkable redistributive power. These programs are a small share of total government social spending but go a long way in terms of redistributing income to the bottom of the distribution.7 In what follows, I present a synthesis of the determinants of inequality dynamics by country. Argentina8 Urban Argentina experienced a sharp increase in inequality from 1990 until the beginning of 2000, and a decline in inequality in the aftermath of the 2001/02 macroeconomic crisis. This period covers two very different, almost opposite, economic policy regimes. In the 1990s, Argentina went through far reaching market-oriented reforms in a context of weak labor market institutions and limited social protection. In the 2000s, state intervention in the economy became more pervasive, labor market institutions were stronger and social protection schemes redistributed income to unskilled and semi-skilled workers. Between 1991 and 2002, the Gini coefficient increased from 0.4652 to. 0.5326. During the 1990s a factor behind the increase in inequality was the increase in the steepness of returns to education: the wage gap between skilled and low-skilled workers rose. As in other Latin American countries, the increase in the skill premium was associated with the modernization of production and organizational structures. This skill-biased technical change, in turn, was associated with Argentinas trade and investment liberalization. Another factor behind the rise in earnings inequality was the weakening of labor unions. There is evidence that labor union membership and activity diminished significantly from 1991 to 2001. The decline in union activity coincided with reforms such as the privatizations, trade liberalization and price stabilization of the 1990s, which reduced the power of unions through the dissipation of rents from state-owned enterprises, protective tariffs and
Beyond targeted transfers, government social spending became more progressive in the 2000s. Spending on health, education, nutrition and basic infrastructure (electricity and water and sanitation, for example) became more pro-poor. In spite of the observed progress, however, a large share of public spending is still neutral or regressive from the distributive point of view. In addition, taxes, in particular personal income taxes, are severely underutilized as an instrument of redistribution in a region characterized by having a substantial number of ultra-high net worth (i.e. super rich) individuals. A detailed description of government cash transfers program can be found in Appendix A. 8 Based on Gasparini and Cruces (2010).
7

inflation-induced rents. The decline in union activity during the 1990s, unsurprisingly, coincided with a period of rising wage inequality. Following the 2002 crisis, the Gini coefficient fell from 0.5326 in 2002 to 0.4486 in 2009. During this period, both labor income (earned) and non-labor income (unearned) income inequality declined. A decomposition of the change in the Gini finds that 67 percent of the total decline in household per capita income inequality can be accounted for by the reduction in labor income inequality.9 The fall in labor income inequality can be accounted for by the expansion of employment generated by the fast economic recovery, the shift in favor of more low-skilled laborintensive sectors as a result of the devaluation of the Argentine peso, the fading out of the effect of skill-biased technical change in the 1990s, and the rise in the influence of labor unions. All these factors caused the skill premium to fall (Figure 3). This period was characterized by unprecedentedly high per capita GDP growth (of 8 percent a year since 2003 (except for the global crisis year of 2009)) and a sharp fall in the unemployment rate: from over 20 percent to 8 percent.10 Although the devaluation initially had a negative impact on real wages, this effect faded as a cheaper peso stimulated output in labor-intensive sectors. By the early 2000s, the large-scale technological upgrading was probably coming to an end. Hence, the upward pressure on wages for skilled labor an unequalizing forcesubsided and the skill premium declined. A pro-union and pro-workers government raised minimum wages, mandated lumpsum increases in wages in the private sector and promoted collective bargaining. The revival of union activism coincided with a period of falling wage inequality after 2002. The decline in non-labor income inequality can be linked to a more progressive fiscal policy. The large devaluation of the peso in 2002 had an indirect equalizing impact in terms of post-fiscal income inequality. The devaluation initially had a negative impact on real wages and a positive effect on rents to land which was compounded by the substantial improvement in terms of trade resulting from the global commodity boom. However, the initially negative (and unequalizing) effect on real wages was in part compensated by the expansion of progressive export taxes which were used to

Alejo et al. (2009). In essence, the method consists of decomposing the change in an inequality measure into the contributions from changes in the distribution of the proximate determinants, taken one at a time, plus the contributions from changes in the interaction (correlation) of proximate determinants with each other. The contributions are estimated through a series of sequential counterfactual simulations that assume that the distribution of the proximate determinant of interest remains the same as in the base year. For details on the methodology, see Barros et al. (2006 and 2007). 10 It should be noted that although inequality fell substantially in relation to the crisis levels, it was not significantly different from its mid/late-1990s levels despite the fact that per capita GDP and employment were higher, labor institutions were stronger, and a massive cash transfer program had been implemented.
9

finance large anti-poverty programs. Higher fiscal revenues were used to increase social spending. Social spending also became more progressive with the implementation of large cash transfer programs such as Jefes y Jefas de Hogar Desocupados in 2002 (which reached 2 million households in 2003). The latter may be an important factor behind the equalizing contribution of the changes in the distribution of non-labor income. In addition, the excise taxes had an indirect redistributive impact because they kept domestic prices of traded goods below their international level; this was particularly important for food prices. Although the benefits of these policies leak to the non-poor and create inefficiencies, they are equalizing, at least in the short-term. In sum, underlying the recent decline in inequality in Argentina are the petering out of the effect of technological upgrading coupled with strong labor-intensive growth. Market forces have been complemented with state action. A pro-union and pro-disenfranchised government has been redistributing the windfall from very favorable terms of trade (associated with the global commodity boom) both through active labor market policies and taxes and transfers. Brazil11 After a few years with very little change, the Gini coefficient has been falling steadily since 1998. The steepest decline occurred after 2000 when Brazils Gini coefficient declined 4.1 percentage points from 0.593 in 2001 to 0.552 in 2007 that is, to the tune of 1.3% per year12 (Figure 4). Extreme poverty and moderate poverty also fell at a modest 2.5 percent per year during the same period, in spite of Brazils very modest GDP growth13 (Table 1).

11This 12

section is based on Barros, de Carvalho, Franco and Mendona (2009b and 2010). The decline in income inequality in Brazil fulfills the Lorenz dominance test and it is statistically significant. Barros et al. (2009). 13 Barros et al. (2009).

Figure 4 Evolution of the Gini coefficient for the Brazilian distribution of persons according to their family per capita income the Gini coefficient for the Brazilian Evolution of

distributon of persons according to their family per capita income

0.64 0.63 0.62 -1.7% per year 0.61
Gini coefficient

0.634 0.623 0.615 0.612 0.602 0.594 0.596 0.599 +0.1% per year 0.600 0.600 0.599 0.598 0.592 0.588 0.582 0.587 0.580 0.593
Overall mean

0.604 0.593 0.589

0.60 0.59 0.58 0.57 0.56 0.55 0.54 1977

0.587 0.581
-1.3% per year

0.569

0.566 0.559 0.552

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Source : Based on Pesquisa Nacional de Domicilios (PNAD), 1997 to 2007; Barros et al. (2009).
Source: Based on Pesquisa Nacional por Amostra de Domiclios (PNAD) 1977 to 2007.

10

Table 1 Poverty and extreme poverty in Brazil, 2001-2007 (%) Indicators Poverty2 Headcount ratio Poverty gap1 Poverty severity1 Extreme poverty2 Headcount ratio Poverty gap1 Poverty severity1 17 7 5 10 4 3 -42 -40 -37 39 18 11 28 12 7 -28 -34 -37 2001 2007 Variation 2001-2007

Source: Estimates based on Pesquisa Nacional por Amostra de Domiclios (PNAD), 2001-2007. Notes: 1. The poverty gap and severity are expressed in multiples of the poverty line. 2. Estimates made using regional poverty lines. The national average poverty line is equal to R$175 per month, and national average extreme poverty line is equal to R$88 per month. Source: Barros et al. (2009). Thus, based on the observed trends in poverty and inequality, Brazils growth pattern could be defined as pro-poor: i.e., the growth of the income of the poor has been higher than the growth of the income of the rich. From 2001 to 2007, the per capita income of the poorest 10% grew 7% per year, a rate of growth nearly three times the national average (2.5%) while that of the richest 10% grew only 1.1 percent (Figure 5). Two-thirds of the decline in extreme poverty can be attributed to the reduction in inequality. 11

Figure 5 Annual growth rate for per capita income in Brazil, by percentile, 2001-2007 percentile, 2001-2007
10

Figure 2.4: Annual growth rate for per capita income in Brazil, by

9 8

Growth rate (%)

7 6
5

7.0 6.2 5.5 5.1

4.8

4.5 3.8 3.1

4 3
2

National

2.3 1.1

1 0 First Second Third Fourth Fifth Sixth Seventh Eighth Nineth Tenth

Source: Estimates based on Pesquisa Nacional por Amostra de Domiclios (PNAD) - 2001 and 2007.

Based on Pesquisa Nacional de Domicilios (PNAD), 1977 to 2007

Source: Barros et al. (2009). The recent decline in inequality in Brazil resulted from three main factors: i) decreasing wage differentials by educational level and reductions in the inequality in education; ii) increasing spatial and sectoral integration of labor markets, in particular among metropolitan and non-metropolitan areas; and, iii) increasing generosity of contributory and non-contributory government transfers.14 If one decomposes the change in household income inequality, it is found that roughly half of the decline can be attributed to a reduction in labor income inequality and half to a reduction in nonlabor income inequality.15 In contrast to the episode of falling inequality in the late 1970s, demographic factors and the role of employment was not significant in either direction. For example, while not the case in the late 1970s, changes in the dependency ratio among the poor were of relatively little importance. In the past, a rise in unemployment among the poor prevented the fall of inequality from being more pronounced. In the current episode, however, unemployment has not played a role. All in all, the decline in labor income inequality has been primarily due to the reduction in wage inequality, and,

Barros et al. (2009). Labor income includes wages and remunerations of the self-employed. Non-labor income includes incomes from property, own businesses and transfers. Transfers, in turn, can be private (remittances and gifts, for example) or public (pensions and conditional cash transfers, for example).
14 15

12

because of the large expansion of access to education for the lower end of the distribution, the reduction in wage inequality is associated with the reduction in education inequality (Figure 6). Since 1995, labor earnings differentials by education level have declined at all levels. This reduction is much clearer after 2002, particularly for secondary and higher education. Figure 6 Education inequality among among workers in Brazil, 1995-2007 Education inequality workers in Brazil, 1995-2007
4.52

Educational inequality (Standard Deviation)

4.50 4.50 4.49 4.49

4.50

4.50 4.49

4.48

4.47

4.47 4.46

4.46 4.44 4.44 4.44

4.42

4.41

4.40 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007

Year

Source:

Barros et al. (2009). Another factor that has contributed to the decline in labor earnings inequality is the reduction in special segmentation. In Figure 7 it is shown that the labor earnings differential has been narrowing between metropolitan areas and small municipalities, and metropolitan areas and medium-size municipalities. The question as to what factors explain this trend remains to be answered. Perhaps there has been a relatively higher expansion of some productive sectors in the Brazilian hinterland as opposed to the metropolitan areas, thereby increasing the demand for labor and pushing up wages in the smaller and medium-sized cities. The earnings gap between formal and informal workers, in contrast, did not fall but went up which means that this type of labor market segmentation played an unequalizing role during the period 1997-2007. Changes in discrimination (labor earnings are different between females and males, blacks and whites, etc., without differences in productivity) were not found to be significant in explaining the reduction in labor earnings inequality.

13

Figure 7 Evolution of labor earnings differential among metropolitan and non metropolitan areas
Figure 7.2: of labor earnings in Brazil, 1995-2007 Evolutionmetropolitan areas differential among metropolitan and non in Brazil, 1995-2007
35 30.2 30
29.5

32.0 28.0 26.0 25.7 23.0

Labor earnings differential (%)

25

Differential among metropolitan areas and small municipalities

20.7
19.3

19.9
18.4

20 15.4 14.5 14.5

Differential among medium and small municipalities

13.3 13.2

17.1 13.6 11.8 10.7 11.4

15

13.1

12.4

12.9 10 10.1 10.7 11.0 9.4 9.3

6.2

10.4 6.4 6.1

Differential among metropolitan areas and medium municipalities

4.5

5.6

5.1

0 1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Year
Source: Estimations produced with Pesquisa Nacional por Amostra de Domiclios (PNAD) 1995 to 2007.

Based on Pesquisa Nacional de Domicilios (PNAD), 1997 to 2007

Source: Barros et al. (2009). As mentioned above, the decline in non-labor income inequality is also very important in explaining the reduction in overall household income inequality. While the size of the contribution varies depending on the methodology, for consistency purposes here we show the results that use the same method as the one used for estimating the contribution of the change in labor income inequality.16 The decomposition exercises attempt to isolate the contribution of each source to the overall change in inequality: assets (rents, interest and dividends), private transfers, and public transfers. Public transfers account for over 80% of families non-labor income17 and the percentage of the population in families with at least one beneficiary increased by 10 percentage points since 2001. The impacts of changes in the distribution of income from assets and private transfers were limited. Most of the impact of non-labor income on the reduction of overall income inequality was due to changes in the distribution of public transfers, which account for 49% of the total decline in nonlabor income inequality. Although both contributory and non-contributory transfers were important

See Barros et al. (2009). Household surveys usually do not accurately capture households at the very top of the distribution whose income is likely to come from assets. This is true for all countries.
16 17

14

factors, the role of contributory transfers was predominant. In particular, changes in social security benefits explain almost 30% of the overall reduction in non-labor income inequality. The increasing coverage of non-contributory benefits, like BPC (Benefcio de Prestao Continuada) and Bolsa Famlia Brazils signature conditional cash transfer program were also important. Despite representing just a tiny fraction of total family income (0.5%), each of these non-contributory benefits explains about 10% of the overall decline in non-labor income inequality. In sum, in the case of Brazil the rapid decline in income inequality observed since 2001 may be attributed to the reaping of the benefits of the expansion of education, the changes in spatial patterns of labor demand and supply, and the larger size and increased progressivity in some public transfers, from both social security and social assistance, but more importantly from the former. However, the wage gap between formal and informal workers continued to increase and some government policies tempered the progress achieved in inequality reduction. In particular, it seems that raising the minimum wage which in effect raises the social security benefits that are tied to the minimum wage is less effective in reducing inequality and extreme poverty than targeted programs such as Bolsa Famlia. Mexico18 After a period of rising household income inequality from 1984 until the mid-1990s, Mexicos inequality has been falling. In particular, between 2000 and 2006, the Gini coefficient dropped from close to .53 to close to .49 or by 4 percentage points. This means a fall of 1.3% per year, similar to the one observed in Brazil for the same time period (Figure 8). Figure 8 Mexico: Gini Coefficient, 1984-2006

18

This section is based on Esquivel, Lustig and Scott (2010).

15

Source: Esquivel (2009) Extreme poverty19 has also been falling consistently since the mid-1990s following the spike in poverty caused by the 1994-95 peso crisis.20 (Figure 9) In particular, extreme poverty fell by 43% between 2000 and 2006. This is especially remarkable given that during this period per capita GDP grew at a modest 2.5% or less per year. The latter emphasizes the role played by the reduction in inequality in explaining the reduction in poverty.

The incidence of poverty is measured using the headcount ratio. In Mexico, extreme poverty is measured using the official food poverty line. 20 The 2005 figures should be taken with caution because survey may not be comparable to surveys in the rest of the years.
19

16

Figure 9 Mexico: Incidence of Extreme Poverty (left axis): 1968-2006

Poverty expenditure

Poverty rate (food poverty)

Source: Scott (2009). The growth incidence curve21 for 2006/2000 plotted in Figure 10 shows that the incomes of the poorest 40% grew faster than the mean of the growth rates for the entire distribution the higher of the two horizontal lines in the Figure.22 Thus, during this period Mexico experienced propoor growth. The next question is which factors explain this growth pattern: changes in demographics, changes in employment patterns, changes in wage inequality, or changes in government transfers?

A growth incidence curve plots the changes in household per capita income (or expenditure) for each quantile of income (or expenditure), from poorest to richest households. Quantiles are usually percentiles or smaller. 22 The mean of the growth rates of the entire distribution was slightly above 2.5 percent.
21

Thousands of millions of pesos (2006)

Poverty rate

17

Figure 10 Mexico: Growth Incidence Curves: 2006/2000

Expenditure Quantiles Source: Esquivel (2009). Recent decomposition exercises of the change in inequality between the period 2000 and 2006 found the following results. Demographic changes as measured by the proportion of adults were equalizing and so were the changes in the proportion of employed adults. This means that the dependency ratio and the number of working adults per household improved relatively more for the poorer households than for the richer households. The inequality in the distribution of labor income and non-labor income fell, with both contributing to the reduction in overall household income inequality. Labor income includes wages and remunerations of the self-employed. Non-labor income includes incomes from property, own businesses and transfers. Transfers, in turn, can be private (remittances and gifts, for example) or public (pensions and conditional cash transfers, for example). The fall in inequality of labor income is by far the most important factor in explaining the decline in overall household income inequality. Between 2000 and 2006, the Gini coefficient fell by 3.07 percentage points or by 5.8%. If the only factor that changed between 2000 and 2006 had been the distribution of labor income, the Gini would have fallen by 3.19 percentage points that is, by even more than the overall decline in inequality.23

23

Alejo et al (2009).

18

The decline in labor income inequality reflects the fall in the skilled/unskilled workers wage gap. In Figure 11 one can observe how the wage gap rose in the period following the trade liberalization of the mid-1980s. This was one of the major components explaining the increase in overall income inequality between the mid-1980s and the mid-1990s. Since the mid-1990s, however, the upward trend of labor income inequality was reversed. Because it coincided with the implementation of the North American Free Trade Agreement (NAFTA) in 1994, there has been a lot of interest in determining to what extent this equalizing trend in relative wages was a product of NAFTA. So far, this question remains unanswered. With NAFTA there was an increase in demand for low-skilled workers for the maquiladora sector. However, during the same period there was also an increase in the share of workers with post-secondary education relative to those without. The share of less-skilled workers (those with less than secondary education) went from 55% in 1989 to 32% in 2006. Figure 11 Mexico: Skilled/Unskilled Wage Gap: 1984-2007

Source: Esquivel (2009) So, it seems that both demand (for example, increased employment in maquiladoras) and supply (changes in the relative abundance of low-skilled workers) factors may have played a role in reducing the wage gap between the skilled and the low-skilled. Figure 12 shows how, between 1996 19

and 2006, the wages of the less educated and less experienced that is, the low-skilled workers increased while the wages of the high-skilled workers fell slightly. This is consistent with the shape of the growth-incidence curve, and the large contribution, stemming from the fall in labor income inequality, to the decline in household income inequality. Figure 12 Mexico: Mean Log Wage of Male Workers by Education and Experience

Source: Esquivel (2009). In sum, the decline in household income inequality in Mexico appears to be determined by a relative (relative to workers with more skills, that is) increase in the demand for low-skilled workers and a relative fall in their supply. The latter must be the product of the progress made in education as more and more cohorts stay in school for more years (something that is confirmed by the steady increase in years of schooling). On the demand side, part of the story could be NAFTA-related: a higher demand for low-skilled workers in the maquiladoras as production processes across North America became increasingly more integrated after NAFTA went into effect. Other factors that may have contributed to a rise in demand for workers at the bottom of the distribution could have been the increase in remittances and cash transfers from Progresa/Oportunidades, the Mexican governments signature anti-poverty program. However, since they all move more or less in tandem, the direct effect of remittances and cash transfers seem to affect the level but not necessarily the trend in income inequality. What might be more important 20

is the indirect effect: that is, the spillover effect that remittances and cash transfers have on employment in poor local economies. Households which receive remittances tend to use them to build, expand or refurbish their dwellings. This generates demand for construction workers in the local economy, who in turn generate demand for other goods and services, and so on. One can think of remittances and cash transfers as myriad stimulus packages benefiting poor communities. Mexico, thus, seems to be a case of lackluster overall growth in GDP and total factor productivity because a large portion of the employment generation occurs at the lowproductivity/low-wage end instead of in the high-wage/high-productivity sectors. However, even if the new employment opportunities are low-wage, the wages (or remunerations) they pay are higher than what this group of low-skilled workers used to receive before 2000. In this sense, Mexicos growth pattern is pro-poor. Although the launching of the anti-poverty conditional cash transfer program Progresa/Oportunidades made public spending more progressive, the bulk of transfers (pensions, in particular) is not. 24 By some estimates, without Oportunidades the Gini coefficient would be around one percentage point higher25, which is not insignificant. Nonetheless, public spending remains largely not pro-poor and in a number of cases it is plainly regressive. Thus Mexicos recent reductions in inequality, while important, remain limited because social policy still has serious shortcomings and inconsistencies. The good news is that this means that there are plenty of opportunities to further reduce poverty and inequality. Peru26 Between 1997 and 2009, Perus Gini coefficient fell from 0.5371 to 0.4908 or by 4.6 percentage points, a change that was both statistically significant and satisfied Lorenz-dominance. In contrast to Argentina, Brazil and Mexico, the evolution of the Gini showed ups and downs instead of a steady decline. In Peru, as in Argentina and in contrast to Brazil and Mexico, the decline in inequality overlapped with a period of fairly rapid economic growth. Decomposing the change in the Gini coefficient for household per capita income indicates that changes in the distribution of non-labor income account for close to 90 percent of the decline in total inequality and that the changes in the distribution of labor income per worker were strongly unequalizing.27 On the surface, then, it would seem that Perus story is very different from that of
Scott (2009). Scott (2009). 26 Based on Jaramillo and Saavedra (2010). 27 Alejo et al. (2010).
24 25

21

the other three countries. However, on closer examination one can see that it is not. While the changes in the distribution of earnings per worker at the household level were unequalizing, the changes in earnings inequality for individual workers were equalizing. A parametric decomposition of the changes in labor income inequality suggests that changes in the educational structure of the workforce (that is, the distribution of human capital) was equalizing.
28

Changes in returns to education (Figure 3) had an equalizing effect at the individual workers level

but were unequalizing at the household level. This suggests that the unequalizing effect of earnings at the household level is more related with assortative matching than with the dynamics of the labor market. It is possible that with more women becoming highly educated, men marrying better educated and better paid women became more pervasive and/or that married better educated women increased their participation in the labor force more than other women.29 The quantity (equalizing) effect of education can be traced back to the expansion in coverage of basic education starting in the 1990s.The price (equalizing) effect of education that is, the decline in the premium to skills-- appears to be the result of the combined effect of the increase in supply of workers with more years of schooling and the fact that demand for skilled workers did not outpace supply. In effect, during this period, the share of workers with secondary school education increased. (Figure 3) This expansion of the educational attainment of the labor force is the result of policies and household decisions from decades. Between 1970 and 2000, school enrolment in basic education increased by 3 percent per year, a higher rate of growth than that of the population at normative schooling age, suggesting a catching-up process among children older than the normative age. Education inequality fell sharply. However, while enrolment rose, spending per pupil fell and a long-term deterioration of the quality of education reduced its equalizing power. Peruvian public schools, which are attended by children of the poor, tend to be of lower quality than private schools. Adjusting for differences in quality, Perus education system is one of the most unequal in Latin America as measured by learning achievement on international tests.30

Jaramillo and Saavedra (2010) apply the methodology used in Bourguignon et al. (2005). This methodology differs from that used in the sections on Brazil and Mexico in that the former simulates the entire distribution while the latter decomposes a specific indicator (the Gini, Theil, etc.). It consists of simulating counterfactual distributions by changing one factor at a time and holding other aspects constant. Among its advantages, this methodology permits the identification of a factors contribution to inequality related to changes in either its distribution or its market returns. For example, it is possible to isolate the contribution of a change in the distribution of educational attainment (a proxy for human capital) from a change in the returns to education (e.g., the skill premium). 29 This very interesting question requires further research beyond the scope of this paper. 30 Jaramillo and Saavedra (2010).
28

22

As mentioned above, the decline in inequality in Peru is accounted for primarily by the decline in non-labor income inequality. Underlying the latter are changes in the size and distribution of government transfers, as it happened in Argentina, Brazil and Mexico. Over the last decade, per capita social spending increased by close to 50 percent and the proportion of social spending directed to the poor also rose. Transfers to the poor increased in the form of non-monetary transfers31 and public services, and more recently, in the form of monetary transfers with the launch of Perus conditional cash transfer program Juntos. Social spending incidence analysis reveals that the share of non-monetary transfers in household per capita income rose by 0.8 percentage points on average. For the poorest income decile, the increase was equal to 6.5 percentage points; for the second, third and fourth poorest deciles, the respective increases equaled 5.5, 4.3 and 2.6 percentage points, respectively. Changes in food transfers, in particular, accounted for the increase in the progressiveness of social spending. While transfers became more pro-poor, the changes at the other end of the distribution reveal that there are some problems in allocation priorities: while the share of non-monetary transfers in per capita household income fell for the 8th and 9th deciles it rose for the 10th (although by less than the average). In sum, in Perulike in Argentina, Brazil and Mexico-- there was also a decline in the premium to skills associated with the expansion of basic education and possible changes in the patterns of labor demand. However, this equalizing effect was more than offset by the unequalizing effect of a more concentrated distribution of labor income per worker at the household level. The causes for the rise in household labor income inequality remain to be investigated but changes in assortative matching and in the pattern of female labor force participation are the two leading candidates. The expansion of government transfers targeted to the poor was a powerful equalizing force in Peru.

2. Declining Inequality in Latin America: the Role of Educational Upgrading As seen above, one of the key factors behind the decline in inequality in the four countries analyzed here is the decline in the skill premium (also called the relative returns to education for workers with post-secondary education). What accounts for this decline: changes in demand, supply or both? Cruces et al. (2011) analyze the trends in educational upgrading and inequality for Latin America in

31

These mainly include health services and food transfers.

23

the last two decades and conclude that changes in the composition of supply of labor by skill are largely responsible for the fall in the premium to skills. In Figure 13 one can observe that educational upgrading took place throughout Latin America. More importantly, the gap in years of education between the richest and poorest quintiles has been falling for the younger cohorts and during the 2000s. However, because of the convexity of returns (that is, returns rise faster for higher levels of education), a decline in the stock of education (as measured by the distribution of years of schooling), does not necessarily translate in a decline in earnings inequality. In fact, it is quite possible to have the opposite effect: that is, an increase in earnings inequality. Bourguignon et al. call this effect the paradox of progress. Cruces et al. find that in most countries this effect prevailed even during the 2000s although in a milder version than in the 1990s. That is, if we assume that the returns to education remained unchanged, changes in the composition of the labor force by education would have resulted in an increase in earnings inequality despite the fact that the distribution of education became more equal by almost any measure in the 2000s.32 This is illustrated in Figure 14. Changes in the distribution of education towards greater equality led to a rise in earnings inequality in the 1990s and the 2000s (with the exception of Honduras and perhaps Uruguay in the latter period), but the effect was less
Education - WIDER

pronounced in the 2000s. This may be an indication that educational upgrading might be reaching
Now let in which the distribution of years 2.1 illustrates the significant increase in the turning pointus turn to changes over time. Figureof schooling (assuming returns and everything the average else constant, that is) years of education in all Latin American countries during the last two becomes equalizing. 4 5 decades, continuing a process initiated decades ago.
Figure 2.1 Change in years of education Adult aged 25-65
3.0 2.5 2.0 1.5 1.0 0.5 0.0

Figure 13

ARG, 92-09

MEX, 89-08

HND, 91-09

URY, 89-09

BOL, 93-05

BRA, 92-09

COL, 92-04

CHL, 90-09

PAN, 91-09

PRY, 90-09

PER, 97-09

SLV, 91-08

CRI, 90-09

NIC, 93-05

Source: own calculations based on SEDLAC (CEDLAS and World Bank).

32

These results are obtained through a parametric decomposition. For more details see Cruces et al. (2011).

In all countries education increased along the income distribution. Individuals from poor and rich socioeconomic strata are now more educated than individuals in the same groups some decades ago. In this paper, however, we are more concerned about differences in educational achievements than on trends for the mean. Figure 2.2 shows

ECU, 94-09

VEN, 89-06

24

Source: Cruces et al. (2011), Figure 2.1.

25

Figure 14 Effect of Change in Distribution of Education on the Gini for Earnings (Results from Microeconometric Decomposition)
Education - WIDER

2.5

2.0

Simultaed change in Gini of earnings

1.5

1.0

0.5

1990s 2000s

0.0

-0.5

-1.0

Brazil

Uruguay

El Salvador

Source: Battiston et al. (2011), Source: Battistn et al. (2011).

Costa Rica

as cited by Cruces et al. (2011), Figure 3.2.

Those countries with higher convexity of the returns to education (proxied by the If the decline in education variable was still education squared) the to be countries estimated coefficient of theinequality years of unequalizing during tend2000s, the fall in with a higher be driven by reduction in the returns to skill. Gasparini correlation earnings inequality mustcounterfactual a changes in inequality (figure 3.3). The et al. (2011) coefficient is higher than 0.8 when ignoring Chile, the main outlier, a country with high analyze the impact of returns to skills on earnings inequality and which factors drive the decline in convexity but a low increase in simulated inequality.

the returns to skills for 16 Latin American countries from 1980 to 2009. Their analysis shows that there has been a persistent and strong rise in the relative supply of skilled labor over the entire
Figure 3.3 period. Estimated relationship between convexity and simulated changes in inequality The wage skill premium shows an inverted-U pattern, rising through the 1990s and declining Results from microeconometric decomposition

during the 2000s. Although it is impossible to econometrically isolate the contribution of demand for skills, the authors argue that it can be inferred from observed patterns of behavior in relative cos
Simulated change in inequality
3.5 3

supply and relative returns. Over the entire period 1989-1999, the relative returns were flat despite
2.5 2

the large increase in relative supply of skilled labor. Hence, there must have been a sharp increase in ecu pan
per bra demand for skilled labor, whichslvneutralized the effect on returns to skilled labor that would 1.5

otherwise have occurred.arg hndcontrast, the results for 2000-2009 suggest that the shifts in relative In 1 mex demand for skilled labor must have been much weaker. Finally, educational upgrading got translated 0.5
0 into lower relative returns for skilled workers, the main driver behind the decline in labor income 0 0.2 0.4 0.6 0.8
uru ven chi

nic

inequality discussed(averageConvexity of2.squared years of education) in section ofreturns to education coeficient

Source: Battistn et al. (2011).

Venezuela

Argentina

Mexico

Chile

Nicaragua

Honduras

Ecuador

Panama

Peru

26

To further illustrate the direct impact of increasing education on earnings inequality figure 3.4 shows the change in the Gini coefficient for the distribution of labor incomes

3. The Role of Government Transfers in Reducing Inequality and Poverty in Latin America: Preliminary Results of a Static Fiscal Incidence Analysis33 Since the late 1990s, governments in Latin America have introduced targeted conditional cash transfers programs (CCT) that in some countries reach millions and millions of poor households. Two of the most renowned CCT are Progresa/Oportunidades (literally, progress/opportunities) in Mexico and Bolsa Familia (literally, family scholarship) in Brazil. Argentina and Peru also have their brand of CCT: respectively, Asignacion Universal por Hijo (Universal Allocation per Child) and Juntos (literally, together). In addition to these flagship programs, the countries have other cash transfers programs not necessarily targeted to the poor. Appendix A presents a detailed description of the cash transfers programs available in these four countries. Lustig et al. (2011b) carry out a detailed static incidence analysis to estimate the impact of these transfers on inequality and poverty in several Latin American countries including the four analyzed here. The main results are in Table 2. Measured by the size of their primary (everything but debt servicing) spending as a proportion of GDP, countries differ significantly: Argentina and Brazil spend between 36 and 40 percent while Mexico and Peru spend a much smaller amount, closer to 20 percent. If you take into account non-tax and provincial government revenues, the fiscal space to engage in redistribution can be quite large: in Brazil, total government revenues (as a share of GDP) surpass 50 percent while in Argentina the figure is close to 40 percent. At the other end of the spectrum are Mexico and Peru where total revenues are just over 20 percent of GDP.34 Social spending35 (as a share of GDP) ranges from around 17 percent in Brazil to 5.2 percent in Peru. Direct cash transfers as a share of GDP are different as well: at the bottom are Mexico and Peru where spending on direct transfers is around 0.5 percent, while Argentina and Brazil and Bolivia spend 3.1 and 5.1 percent of GDP, respectively. The much larger size of cash transfers in these countries arises from various forms of non-contributory pension programs: the Pension Moratorium (2.3 percent of GDP) in Argentina and Special Circumstances Pension (2.3 percent of GDP) in Brazil.

This section is based on Lustig et al. (2011b). Results are preliminary and should be treated with caution. The sources for these numbers can be found in et al. (2011b) Appendix B. 35 Social spending here includes public spending on education, health and social assistance. It does not include spending on contributory pensions except for the subsidized portion. The subsidy is equal to the deficit of the pay-as-you-go pension system in the year of the survey. If the contributory pension system did not have a deficit, the subsidy was taken to be equal to zero.
33 34

27

When these items are removed, cash transfers as a share of GDP in Argentina and Brazil decline to 0.8 and 0.6 percent, respectively. One key result in Table 2 is that income inequality reduction through transfers can be significant but the result varies among countries. Argentina is the champion redistributionist state. Taking into account all cash transfers, the disposable income Gini coefficient is 10.3 percent lower than the pre-transfers Gini in Argentina while the figures range from 2.5 to 3.5 percent for the other three countries. As would be expected, the redistributive effectiveness36 is also quite different across countries. Argentina seems to get the most redistribution for the buck spent by the government followed by Mexico and Peru. Existing studies tend to focus on inequality. However, the question of how much poverty reduction is attained through fiscal policy is of equal (if not greater) importance. Our analysis shows that, again, results vary across countries. Argentinas fiscal policy reduces extreme poverty37 the most both in relative and absolute terms. In Argentina, Brazil, Mexico and Peru, the pre-fisc headcount ratio for extreme poverty is between 13 and 15 percent. Direct cash transfers in Argentina reduce extreme poverty by a staggering 63 percent; after direct transfers and taxes extreme poverty in Argentina is as low as 5 percent (headcount ratio). At the other end of the spectrum is Peru where direct transfers38 reduce extreme poverty by only 8 percent. Brazil and Mexico are in between: disposable income (that is, after direct net transfers) poverty is roughly 22 percent lower than market income extreme poverty. However, because Mexicos and Perus direct transfers are better targeted than those in Argentina, the poverty reduction effectiveness is highest in Mexico followed by Peru. By this measure, Argentina ranks third, and Brazil ranks worst. Brazil has roughly the same headcount ratio as Mexico for pre-fisc extreme poverty (15.6 and 13.5 percent, respectively). While Brazil spends about eight times more on direct cash transfers (as a share of GDP) than Mexico, fiscal policy reduces extreme poverty by the same 22 percent in both countries. Preliminary conclusions from the previous results (and the broader analysis in Lustig et al. , 2011b) is that countries that have cash transfer programs whether conditional or notcan achieve notable reductions in inequality and poverty the more the programs are targeted to the poor and the larger the coverage of these programs among the poor. Of course, for an equal level of targeting

36The

Effectiveness Indicator is defined as the redistributive effect of the taxes or transfers being analyzed divided by their relative size with respect to GDP. See section 2.iv. 37 Extreme poverty is measured using the international PPP US$2.50 a day poverty line which for Latin America corresponds to roughly the median of national extreme poverty lines. 38 In Peru, direct transfers include an important share of transfers in-kind in the form of targeted subsidies for food.

28

and coverage, the more the country spends on such programs, the more redistribution and poverty reduction it will achieve. Because these results are based on static incidence analysis, several caveats are in order. In particular, this analysis does not take into account behavioral responses or the fiscal sustainability of the redistributive policy. In the case of Argentina, there is great concern that current policies are creating incentives to informality and are not fiscally sustainable. The latter is primarily the result not so much of the redistribution of resources to the poor but of fiscal redistribution as a whole, which includes many subsidies to industry and the nonpoor.

29

Table 2 - Fiscal Policy and Redistribution in Latin America: Argentina, Brazil, Mexico and Peru

Market' Income
Column'Number Argentina' (urban) Gini %'change'wrt'market'income %'change'wrt'net'market'income Effectiveness'indicator Headcount'index'($4'PPP) %'change'wrt'net'market'income Effectiveness'indicator Headcount'index'($2.5'PPP) %'change'wrt'net'market'income Effectiveness'indicator Brazil Gini %'change'wrt'market'income %'change'wrt'net'market'income Effectiveness'indicator Headcount'index'($4'PPP) %'change'wrt'net'market'income Effectiveness'indicator Headcount'index'($2.5'PPP) %'change'wrt'net'market'income Effectiveness'indicator Mexico Gini %'change'wrt'market'income %'change'wrt'net'market'income Effectiveness'indicator Headcount'index'($4'PPP) %'change'wrt'net'market'income Effectiveness'indicator Headcount'index'($2.5'PPP) %'change'wrt'net'market'income Effectiveness'indicator Peru Gini %'change'wrt'market'income %'change'wrt'net'market'income Effectiveness'indicator Headcount'index'($4'PPP) %'change'wrt'net'market'income Effectiveness'indicator Headcount'index'($2.5'PPP) %'change'wrt'net'market'income Effectiveness'indicator Not/available )) )) Not/available )) )) Not/available )) )) 0.504 )) )) )) Not/available )) )) Not/available )) )) 0.572 )) )) )) 26.6% )) )) 15.3% )) )) 0.511 )) )) )) Not/available )) ))

Net' Market' Income

[2]

Disposable' Income

[1] 0.479 )) )) ))

[3] 0.480 0.2% )) )0.02 24.9% )) )) 14.7% )) )) 0.560 )2.1% )) 0.17 27.3% )) )) 15.6% )) )) 0.502 )1.9% )) 0.73 26.4% )) )) 13.5% )) )) 0.495 )1.7% )) 0.30 28.8% )) )) 15.1% )) )) 0.431 )10.1% )10.3% 3.33 15.7% )36.9% 11.99 5.4% )63.3% 20.54 0.546 )4.5% )2.5% 0.60 24.2% )11.4% 2.75 12.2% )22.2% 5.35 0.493 )3.6% )1.8% 2.88 23.5% )10.9% 17.87 10.4% )22.8% 37.50 0.492 )2.5% )0.8% 2.15 28.1% )2.4% 6.71 13.9% )7.9% 21.70

30

Notes: "%$change$wrt"$is$an$abbreviation$for$"percent$change$with$respect$to" The$Effectiveness$Indicator$is$defined$as$the$redistributive$effect$of$the$taxes$or$transfers$being$analyzed$divided$by$their$ relative$size.$Specifically,$it$is$defined$as$follows:$For$the$net$market$income$Gini,$it$is$the$fall$between$the$market$income$and$ net$market$income$Gini$as$a$percent$of$the$market$income$Gini$divided$by$the$size$of$direct$taxes$and$employee$contributions$ to$social$security$as$a$percent$of$GDP.$For$the$disposable$income$Gini$and$headcount$index,$it$is$the$fall$between$the$net$market$ income$and$disposable$income$Gini/headcount$index$as$a$percent$of$the$net$market$income$Gini/headcount$index,$divided$by$ the$size$of$direct$transfers$as$a$percent$of$GDP.$For$the$final$income*$Gini,$it$is$the$fall$between$the$net$market$income$and$final$ income*$Gini$as$a$percent$of$the$final$income*$Gini,$divided$by$the$size$of$the$sum$of$direct$transfers,$education$spending,$ health$spending,$and$(where$it$was$included$in$the$analysis)$housing$and$urban$spending,$as$a$percent$of$GDP. In$this$table$the$headcount$index$is$expressed$as$a$percentage. Not$available$means$that$the$corresponding$figure$could$not$be$estimated$based$on$the$household$survey$being$used.$Not$ applicable$indicates$that$market$income$is$not$applicable$in$Bolivia$because$there$were$negligible$or$no$direct$taxes$on$income$ and$contributions$to$social$security$in$Bolivia$in$the$year$of$the$survey. For$Argentina$the$Gini$of$post5fiscal$income$could$only$be$calculated$by$quintile$because$indirect$taxes$are$imputed$based$on$ secondary$sources.$The$Gini$calculated$by$quintile$for$post5fiscal$income$(ignoring$intra5quintile$inequality)$is$0.421,$which$is$an$ increase$over$the$disposable5income$Gini$when$it$is$calculated$by$quintile,$of$0.408. The$%$of$spending$which$is$progressive$in$absolute$terms$in$the$cases$of$Brazil,$Mexico$and$Peru$includes$the$subsidized$portion$ of$contributory$social$security$pensions;$also,$in$the$case$of$Brazil$it$corresponds$to$the$figure$leaving$out$health$spending;$with$ health$spending,$the$number$is$29.2%. Social$Spending$includes$public$spending$on$Education,$Health,$Social$Assistance$and$the$Subsidized$Portion$of$Social$Security. The$concentration$coefficient$excluding$CEQ$Social$Spending$is$reported$excluding$health$spending$for$Brazil.$$Brazil$is$the$only$ country$studied$that$does$not$include$a$question$on$its$survey$regarding$use$of$health$services$or$health$coverage.$Thus$a$ secondary$source$(IBGE,$2009)$was$used$to$determine$the$distribution$of$health$spending.$Unfortunately$this$source$does$not$ break$down$health$spending$into$sub5categories,$some$of$which$would$probably$be$absolutely$progressive$while$others$would$ The$Gini$reported$for$Argentina$and$Mexico$ignores$intra5decile$inequality$while$the$Gini$reported$for$Brazil$and$Peru$take$intra5 decile$inequality$into$account. The$surveys$used$for$each$country$are$as$follows.$Argentina:$Encuesta$Permanente$de$Hogares,$1st$semester$of$2009;$Bolivia:$ Encuesta$de$Hogares,$2007;$Brazil:$Pesquisa$de$Oramentos$Familiares,$200852009;$Mexico:$Encuesta$Nacional$de$Ingreso$y$ Gasto$de$los$Hogares,$2008;$Peru:$Encuesta$Nacional$de$Hogares,$2009.

4. Concluding Remarks Since around 2000, inequality has been declining in the majority of countries in Latin America. In this paper we analyzed the causes underlying the dynamics of inequality by focusing on four cases where inequality declined: Argentina, Brazil, Mexico and Peru. The analyses presented above seem to indicate that both market forces and state action played important roles in explaining inequality dynamics. In particular, the decline in inequality in Argentina, Brazil, Mexico and Peru seems to be strongly associated with decreasing hourly wage differentials by educational level (or, in other words, a decline in the skill premium or returns to education) and to a lesser extent--

31

reductions in the inequality in education.39 The reduction in wage differentials, in turn, can be partly associated with greater access to education in preceding years which made workers without schooling or incomplete primary relatively scarce. State action contributed to the decline in inequality in Argentina, Brazil, Mexico and Peru in three main ways. First, greater access to basic education is the result of explicit efforts made by the governments of Brazil, Mexico and Peru (in Argentina, schooling inequality was relatively smaller to begin with). Second, government (net) transfers became more generous and progressive. The largescale signature conditional cash transfer programs Bolsa Familia (Brazil) and Oportunidades (Mexico) reduced per capita household income inequality by between 10 and 20 percent. Section 3 illustrated the nontrivial contribution of transfers to reducing pre-fisc inequality and poverty in a static fiscal incidence analysis. Third, in Argentina and Brazil state action let itself be felt through active labor market policies. In both countries, higher minimum wages compressed the wage distribution. The results presented here seem to support the existence of a Tinbergean process (Tinbergen, 1975) of inequality dynamics in Latin America in the last 30 years. This view argues that the evolution of inequality (earnings inequality in particular) depends everything else equal-- on the race between education and technology. New technologies require workers with special skills and for a while skilled workers can enjoy a skill premium that causes earnings inequality to rise. The skill premium, in turn, creates incentives to invest in the upgrading of skills. As skilled workers become a larger share of the labor force, the skill premium--and hence earnings inequality-- declines. It should be noted that in several countries the equalizing effect of educational upgrading occurs primarily through the decline in skill premium (that is, the narrowing of the wage gap between high skilled and low skilled workers). In contrast, the change in the composition of the labor force by skilthe socalled quantity-effect--is still unequalizing in many countries indicating that the paradox of progress identified by Bourguignon et al. (2005) still prevails. This paradox consists in that increases in the mean level of education (with returns kept constant) are associated with higher income inequality, even if the inequality in the distribution of education falls. This association is simply a result of the convexity of the earnings functions with respect to education. (Bourguignon et al., p. 397) Bourguignon et al. find evidence of the paradox of progress in the cases of Argentina, Colombian, Indonesia, Malaysia and Mexico in the 1980s and 1990s; in contrast, it was not present
Similar dynamics in the labor market were found in Argentina and Chile; see Gasparini and Cruces (2010) and Eberhardt and Engel (2008).
39

32

in Brazil and Taiwan, China. More recent research, finds that the paradox of progress was still quite common in Latin America even during the period of declining inequality. (Cruces et al., 2011) It is precisely the existence of a Tinbergen-like process that may bring the equalizing forces in the distribution of earnings to a halt as populations face barriers to access to tertiary education. Expanding basic education is relatively easier because the cost per student is smaller and the opportunity cost much lower. For post-secondary education, however, costs per student are much higher. More importantly, the opportunity cost for individuals rises sharply once they are of working age. Last but not least, a primary barrier to access to post-secondary education might be the low quality of education in the preceding levels. Even though access to basic education has become widespread, the differences in the quality of education received by the poor are still very sharp. If no corrective measures are taken in improving the quality of basic education across the board and expanding access to post-secondary education for the poor, the equalizing forces in the labor market will stop and, maybe, even get reversed. In fact, there is evidence that rising high school dropout rates and the college-unreadiness of young people from low-income families is behind the sharp increase in earnings inequality in the United States. In their brilliant and well-documented book, Goldin an Katz (2008) show how the decline in the rate of growth of college educated workers explainsto a large extentthe sharp rise in earnings inequality experienced in the United States in the last thirty years. Many other studies have been written on the subject.40 The message is clear: unequalizing trends in access to education of adequate quality sooner rather than later translate into rising earning inequality. They may also translate into less inter-generational mobility and less inclusive societies all around. However, more than rising tuition costs, the evidence points to problems associated with lack of investment in the human capital of children from very early on and not just at college-age. The evidence also points at the lack of quality of education starting with pre-school as a major determinant of the collegeunreadiness of low-income families youth. The experience of the US with educational upgradings failures should serve as a warning to Latin America. And both, the Latin American and US experiences can shed light on what Asia needs to address in order to promote more inclusive growth.

40

See, for example, Carneiro and Heckman (2003) and the work cited there.

33

References Alejo, Javier, Marcelo Bergolo, Fedora Carbajal, and Guillermo Cruces. 2009. Cambios en la desigualdad del ingreso en Amrica Latina. Contribucin de sus principales determinantes. (1995-2006). Informe Final. Background paper prepared for the UNDP project Markets, the State and the Dynamics of Inequality in Latin America co-ordinated by Luis Felipe Lopez-Calva and Nora Lustig. (http://undp.economiccluster-lac.org/). Altimir, Oscar. 2008. Distribucin del ingreso e incidencia de la pobreza a lo largo del ajuste. Revista de la CEPAL no. 96 (December). Alves, Guillermo, Vernica Amarante, Gonzalo Salas and Andrea Vigorito. (2011). The Evolution of Inequality in (Urban) Uruguay in the Last Three Decades (1986-2009). Discussion paper prepared for the UNDP Project Markets, the State and the Dynamics of Inequality: How to Advance Inclusive Growth, co-ordinated by Luis Felipe Lopez-Calva and Nora Lustig. Barros, Ricardo, Mirela de Carvalho, Samuel Franco, and Rosane Mendona. 2009b. Markets, the State and the Dynamics of Inequality: Brazils Case Study, prepared for the project Markets, the State and the Dynamics of Inequality, UNDP. Barros, Ricardo, Mirela de Carvalho, Samuel Franco, and Rosane Mendona. 2010. Markets, the state and the dynamics of inequality in Brazil. In Luis F. Lpez Calva and Nora Lustig (eds.), Declining Inequality in Latin America: A Decade of Progress? Chapter 6. Washington DC: Brookings Institution and UNDP. Barros, Ricardo, Francisco H. G. Ferreira, Jos R. Molinas Vega, and Jaime Saavedra Chanduvi. 2009. Measuring Inequality of Opportunities in Latin America and the Caribbean. Washington, DC: World Bank. Bourguignon, Francois and Francisco G. H. Ferreira. 2005. Decomposing changes in the distribution of Household Incomes: Methodological Aspects. In Bourguignon, Francois, Francisco G. H. Ferreira and Nora Lustig (eds.). The Microeconomics of Income Distribution Dynamics in East Asia and Latin America. New York: Oxford University Press. Carneiro, Pedro and James J. Heckman. 2003. Human Capital Policy. Working Paper 9495, National Bureau of Economic Research.

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Cruces, Guillermo, Carolina Garcia and Leonardo Gasparini. 2011. Inequality in Education. Evidence for Latin America, CEDLAS, Universidad Nacional de La Plata, Argentina. Paper presented at WIDER workshop The New Policy Model, Inequality and Poverty in Latin America, August. Esquivel, Gerardo. 2009. The Dynamics of Income Inequality in Mexico since NAFTA. Background paper prepared for the UNDP project Markets, the State and the Dynamics of Inequality: How to Advance Inclusive Growth, co-ordinated by Luis Felipe Lopez- Calva and Nora Lustig. (http://undp.economiccluster-lac.org/). Eberhard, Juan and Eduardo Engel. 2008. Decreasing Wage Inequality in Chile. Discussion paper prepared for the UNDP Project Markets, the State and the Dynamics of Inequality: How to Advance Inclusive Growth, co-ordinated by Luis Felipe Lopez-Calva and Nora Lustig. (http://undp.economiccluster-lac.org/). Esquivel, Gerardo, Nora Lustig, and John Scott. 2010. A Decade of Falling Inequality in Mexico: Market Forces or State Action? In Luis F. Lpez Calva and Nora Lustig (eds.), Declining Inequality in Latin America: A Decade of Progress? Chapter 6. Washington DC: Brookings Institution and UNDP. Gasparini, Leonardo and Guillermo Cruces. 2010. A distribution in motion: the case of Argentina. In Luis F. Lpez Calva and Nora Lustig (eds.), Declining Inequality in Latin America: A Decade of Progress? Chapter 5. Washington DC: Brookings Institution and UNDP. Gasparini, Leonardo, Sebastian Galiani, Guillermo Cruces and P. Acosta. 2011. Returns to Skills, Supply and Demand Factors in Latin America During the 1990s and the 2000s. Working Paper, Social Protection, LCR, World Bank. Lerman, R. and S. Yitzhaki. 1985. "Income Inequality Effects by Income," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 151-56. Londoo and Szekely. 2000. Persistent Poverty and Excess Inequality: Latin America, 1970-1995. Journal of Applied Economics (May) no. 1: 93-134. Lpez-Calva, Luis F. and Nora Lustig. 2010. Declining Inequality in Latin America: A Decade of Progress?. Washington, DC: Brookings Institution. Lustig, Nora. 2010. Is Latin America Becoming Less Unequal? in Vision for Latin America 2040. Achieving a More Inclusive and Prosperous Society, prepared for CAF (Andean Development Corporation) by Centennial Group, Washington DC.

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Lustig, Nora, Luis F. Lpez-Calva and Eduardo Ortiz-Juarez. 2011a. The Decline in Inequality in Latin America: How Much, Since When and Why. Working Paper no. 1118, Tulane University. Lustig, Nora (coordinator). 2011b. Fiscal Policy and Income Redistribution in Latin America: Challenging the Conventional Wisdom. Argentina (Carola Pessino), Bolivia (George GrayMolina, Wilson Jimenez, Veronica Paz and Ernesto Yaez), Brazil (Claudiney Pereira and Sean Higgins), Mexico (John Scott) and Peru(Miguel Jaramillo), background paper for Corporacion Andina de Fomento (CAF) Fiscal Policy for Development: Improving the Nexus between Revenues and Spending/Poltica Fiscal para el Desarrollo: Mejorando la Conexin entre Ingresos y Gastos. 2012. This paper is an output of Commitment to Equity, a joint initiative of the InterAmerican Dialogue and Tulane Universitys CIPR and Department of Economics (Working Paper 1124 http://econ.tulane.edu/workingpapers.shtml) Scott, John. 2009. Gasto Pblico y Desarrollo Humano en Mxico: Anlisis de Incidencia y Equidad. Working Paper for Informe de Desarrollo Humano de Mxico 2008/2009. Mxico: PNUD. SEDLAC (Socio-Economic Database for Latin America and the Caribbean), CEDLAS y Banco Mundial. La Plata, Argentina y Washington DC. http://www.depeco.econo.unlp.edu.ar/cedlas/sedlac/. Tinergen, Jan. 1975. Income Differences: Recent Research. Oxford, U.K.: North-Holland.

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Appendix A. Description of Flagship Transfer Programs Source: Lustig et al. (2011b) ARGENTINA Program Name Argentina Jefes y Jefas de Hogar Desocupa dos (JJHD) (Unemplo yed Househol d Heads Program) Type of Program Target Population Number of Beneficiaries (year of survey) 450,000 approximately according to public accounts; the number continues to decrease as beneficiaries move to the labor force and other programs. The number according to the survey is not reported here because the survey only covers urban areas. Year of First Implement ation 2002 (It evolved from the Programs Trabajar I, II and III, 1996-1999) Budget (year of survey, local currency per year) 878 million pesos Acting Mechanism Estimated Impact

Cash transfer (theoretical ly conditional but not in practice)

Those formally deemed eligible to participate were unemployed household heads with dependents (children aged less than 18 or incapacitated), regardless of whether the family lived in poverty; contrary to its predecessor, Jefes did not have an explicitly stated poverty focus (Galasso and Ravallion, 2004).

In order to enroll, the potential participants had to request participation through the local municipality or through local offices of the Ministry of Labor. JJHD gives 150 pesos to each beneficiary. The co- responsibility or condition that must be met by the beneficiary could be related to work, skills- training, or education. Among the former, efforts related to productive or community projects run by municipalities or other public or private non- profit organizations stand out, as well as (to a lesser extent) the incorporation of beneficiaries into companies through formal employment contracts. The other possible co- responsibilities involve attending classes for skills- training or formal education at the primary or secondary level. The daily commitment to the co-responsibilities must be not less than four hours and not greater than six. Although the program originally required workfare in exchange for the transfer, it is not clear that the condition was fulfilled by most.

Familias para la Inclusion Social (Families for Social Inclusion Program)

Conditional Cash Transfer (CCT)

Poor families with children younger than 19 years old.

695,177 families according to public accounts. The number according to the survey is not reported here because the survey only covers urban areas.

2006 (successor of the Programa de Ingreso para el Desarrollo Humano (IDH) and a partial recipient of beneficiari es from Programa Jefes y Jefas de Hogar

2,160 million pesos

The amount of the transfer depends on the quantity of children. The average beneficiary household had 2.9 children younger than 19 years old and received 215 pesos (in October 2007). The objective is to reduce the intergenerational transmition of poverty; the conditions are based on education conditions (minimum level of school attendance for children between 5 and 18 years old) and health (requirements for children and pregnant women).

The aim of only targeting unemployed heads of households with dependents was clearly not realized; indeed, Galasso and Ravallion (2004) results suggest that a large share of participants were women who would have not otherwise have been in the labor force. About half of the employment gain due to the program came from unemployment and half from inactivity. We estimate that the program reduced Argentinas unemployment rate by about 2.5 percentage points. This is less than half of previous estimates that have assumed that all Jefes participants would have otherwise been unemployed. Factoring in the foregone incomes, the program had a small effect on the overall poverty rate, though a more sizeable impact on the incidence of extreme poverty (see Galasso and Ravallion (2004) for the early evaluation of the program). Most authors following this initial evaluation (see Bertranou and Paz (2007)) emphasize the increase in labor force participation brought about by this Program, especially from women. See Bertranou and Paz (2007) for a thorough review of other aspects in the evaluation of this program. In 2006 an evaluation of the impact of Plan Familias para la Inclusin Social was released, four years after the program was launched (see Rosas, 2007). The evaluation was supervised by SIEMPRO and carried out by the Universidad Nacional de Tres de Febrero. An increase in school attendance, especially in the initial levels (EGB1 and EGB2), is an important accomplishment of the program. However, it should be noted that among beneficiary adolescents between the ages of 15 to 17, the percent that are not a part of the education

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Desocupad os (JJHD)) Asignacio n Universal por Hijo (AUH) (Universal Allocation per Child Program) CCT Boys, girls, and adolescents in families that are unemployed or in the informal sector and do not receive another form of family allowance. If employed in the informal sector the salary should be inferior to the minimum wage. Goal: 1,650,000 families Decemb er 2009 Budgetary goal: 7000 million pesos The program is funded by the Fondo de Garanta de Sustentabilidad del ANSES. Among the characteristics of this program, it stands out that recipients of AUH cannot receive any other type of social plan and that the spirit of the program is to gradually phase out several others and replace them. The program explicitly excludes workers in the informal sector that earn more than the monthly minimum salary (Salario Mnimo Vital y Mvil). With respect to the health and education conditions, 20% of the benefit will be paid (credited to a bank account) at the beginning of each school year, as long as the beneficiary presents the required certification of vaccinations and school attendance. The current benefit is 180 pesos per month per child with a maximum of five children per family

system is still significant (13%). More information can be found in the study mentioned. N/A

Non- contribut ory pensions

Non- contributor y pension

Various; see "Acting Mechanism"

In the year 2008, 117,936 beneficiaries of Pensiones Graciables (given by Congressmen), 204,680 beneficiaries from Special Laws and 365,964 given by the Ministry of Social Development. From 2004 to 2008 the latter increased from 393,700 beneficiaries to 688,580 beneficiaries.

1948

6093 million pesos (estimated using number of pensioners in 2008)

These pensions have a long history in Argentina and are regulated by special laws. A portion of them are called Pensiones Graciables and are given by Congressmen to whom they consider deserving (supposedly poor) , another part were instituted by different laws and given to ex-presidents, veterans of Malvinas, families of the disappeared, some bishops, and others, and the last part are social protection non- contributory pensions given by the Ministry of Social Development for the disabled, old age (more than 70), and mothers of seven or more children.

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 ARGENTINA (CONT.) Moratoria Non- Elderly who had Previsional contributory not fulfilled the (Pension or partially requirement to Moratorium contributory receive for Non- pension contributory contributory pensions of 30 Citizens) years of contributions to the system.

Approximately 2,000,000 beneficiaries at the end of 2009 (by mid-2010 there were reported 2,332,295 beneficiaries of the program).

2005

20540 million pesos

The moratorium law which is still in place allows an individual to pay its accumulated debt with the social security system at a discount as long as the debt was accumulated prior to 1993 and the amount is calculated between the year in which the individual was 18 years old and 1993. This moratorium law was enacted in 1995, but in 2005 it was transformed into a permanent entitlement. The number of beneficiaries will decline over time and eventually reach zero since it has a fixed date until when the moratorium is applied. For an eligible individual, he or she will receive 800 pesos per month (moratorium pension in 2009 equivalent to roughly 250 dollars per month) minus the moratorium contribution.

According to data from the Administracin Nacional de Seguridad Social, since 2005, when the new moratoria of the Plan de Inclusin Previsional was implemented, a total of 2.5 million people were integrated into the pension system. The coverage rate of the pension system is 86.7%, reaching 6,326,543 beneficiaries, between retired people, national pensioners and non- contributory pension recipients. In 2003, before the moratoria previsional was introduced, the coverage rate of Argentina's pension system was only 57% (ANSES).

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BRAZIL Bolsa Famlia (Family Scholarship)

CCT

Poor families with children under 18 or pregnant women, and all extreme poor (the latter group is regardless of having children).

12.37 million households according to public accounts; 7,958,558 million households according to survey

2003

12.45 billion reais

Eligibility is determined through partially-verified means testing. Families in the program have an electronic card they can used to withdraw the monthly transfer at ATM machines. The transfer amount was, in September 2009, 22 reais per child 0-15 (up to three children), 33 reais per adolescent 16-17 (up to two adolescents) for families with income below 140 reais per capita per month and at least one child under 18 or pregnant woman (the "variable benefit"), and an additional 68 reais for households with income below 70 reais per capita per month, regardless of whether there are children (the "fixed benefit"). The conditions are pre-natal and post-natal care sessions for pregnant women, adherence to a calendar of vaccinations for children 0-5, and a minimum level of school attendance for children ages 6- 17. There are no conditions for the "fixed benefit" given to extremely poor households.

On poverty: Higgins (2011) finds that in 2009, Bolsa Famlia caused between a 12 and 18% decrease in the headcount index, between a 19 and 26% decrease in the poverty gap, and between a 24 and 31% decline in the squared poverty gap at the national level, and it should be noted that the impact was much higher in rural areas. On inequality: Barros et al (2010) find Bolsa Famlia and its predecessor programs were responsible for 13% of the observed reduction in inequality from 2001-2007; also see Soares, Ribas, and Soares (2010), Soares et al. (2009), and Barros, Carvalho, and Franco (2007). On adult labor supply: negligible or no impact (Foguel and Barros, 2010, Teixeira, 2008, Tavares, 2010). On child labor supply: some impact on decision to work (Kassouf, Ferro, and Levinson, 2010). Various studies show increased school attendance among recipient children; there is a lack of comprehensive evaluations of education outcomes. On health outcomes: no significant impact. On inequality: Barros et al (2010) find that BPC was responsible for 10% of the observed reduction in inequality in Brazil from 2001-2007.

Benefcio de Prestao Continuada (BPC) (Continued Benefit for the Elderly)

Non- contributory pension

Elderly poor 3,166,845 (over 65 years beneficiaries; old) and 1,297,785 incapacitated according to poor deemed survey (note it incapable of has been working documented that some households mis-report BPC under INSS pensions).

Brasil Sem Misria (Brazil without Indigence)

Mixed

Extreme poor (household per capita income of 70 reais per month or less) who are excluded from the current safety net system

1995 (written 16.86 billion Monthly monetary transfer of into the 1988 reais one minimum salary (465 reais constitution per month in September, but effectively 2009) to elderly poor or implemented incapacitated poor. Elderly in 1995 means over 65 years old and [Medeiro, incapacitated is determined by Britto and doctors based on ability to Soares, 2008]) work. The definition of poor for BPC is household per capita income of less than one quarter minimum salary (116.25 reais per month in September, 2009). 2011 0 Poverty mapping will be extensively used to identify areas with high concentrations of poor excluded from safety net system, and professional teams will be in charge of locating excluded extreme poor in assigned areas. One goal is that an estimated 800,000 extremely poor families eligible for Bolsa Famlia but not receiving benefits will be enrolled. In rural areas, the program will provide professional technical assistance to farmers, improve irrigation systems, assist in the production of food products and access to markets, provide improved seeds and other

N/A

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agricultural technology to poor farmers, and provide a biannual monetary transfer of 2400 reais to each eligible family for two years to buy inputs and equipment. In urban areas, the program will focus on the insertion of Bolsa Famlia recipients in the labor market. 200 types of free certification courses will be offered, along with free learning materials, lunch, and transportation. The government will produce an "opportunities map" to help locate labor market opportunities, and incentives will be provided for public and private companies that hire Bolsa Famlia recipients.

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MEXICO Oportunidades CCT (Opportunities; previously called Progresa until 2001 when it changed its name)

Originally targeted at poor rural communities, and basic education in 2001 it was gradually extended to urban localities and higher education services. Social Development Ministry.

Administrative data: 5.0492 million families and 23.3 million beneficiaries in 2008. Survey: 20.9 million beneficiaries.

1997

41,361 million pesos

Provides direct monetary and in kind transfers conditional on school attendance and health visits. Targeted geographically and at the household level through a proxy-means test calibrated to match the official poverty measure in Mexico. Scholarships cover the last three years of basic education and high-school, with increasing values for higher levels, designed to approximate labor opportunity costs. Conditional on school inscription and attendance. Beneficiary households also receive a per household transfer conditional of attending health services, as well as nutritional supplements targeted at infants and pregnant woman.

Reduction of 8% in poverty due to program benefits in rural communities. Positive effect on school enrollment for primary and secondary education. Increase in probability of 42% and 33% of entering secondary education for children 12 and 14 years old in rural areas, respectively. Terminal efficiency of secondary education has increased 23% in areas where Oportunidades operates. Decrease in the proportion of dropout for 16 to 19 year old adolescents in urban areas. Increase of one year of schooling for adolescents (15 to 19 years old) who received program support for 5 years approximately in rural areas. Oportunidades families increased their preventive and curative visits up to 35% in rural areas. Adults increased preventive visits by 26% in urban areas. National maternal and infant mortality decreased by 11% and 2%, respectively. Increase of 1.42 cm in height for children under 2 years old in urban areas. Reduction of 20% of sick days for children under 5 years old in rural areas. More than 90% of children receiving nutritional supplements show adequate consumption levels of iron, zinc and A and C Vitamins. Significant multiplier effect on producer income.

Procampo (Pro- rural areas/agriculture)

Delinked per hectare transfer to agricultural producers.

All producers cultivation one of nine basic crops in 1993, representing most of the agricultural producers in the country. All the population of 70 years and older living in localities of less than 30,000.

Administrative data: 2.39 million beneficiaries in 2008. Survey: 823,257.

1994

14,198 million pesos

Programa 70 y ms (Seventy years and older program)

Universal rural non- contributory pension.

Administrative data: 1.031 million beneficiaries in 2008. Survey: 991,795.

2007

9536.7 million pesos

Direct monetary transfer per hectare, originally set at close to 100 dollars per hectar to all beneficiaries identified in the original 1993 survey on the basis of cultivation of nine basic crops. Conditional on cultivation of the land, but after 1995 not conditional on particular crops. All the population of 70 years and older living in localities of 30,000 or less are eligible for this universal rural non- contributory basic pension of 500 pesos (37 US dollars) per month.

N/A

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PERU Juntos (CCT Together) CCT Poor and extremely poor families with children under 14 or pregnant women 409,610 households according to public accounts 2005 512 million nuevos soles Juntos gives 200 soles to each family every two months conditioned to complying health and educational conditions. Families selected have to be poor or extremely poor according to the national poverty line. Geographical targeting and community assessments are used to identify beneficiaries. The program gives beneficiaries food baskets and food supplements through health posts, pre-schools and schools Significant effects over: consumption and poverty indicators, school attendance, health checks and likelihood to seek medical help among children under 6, doctor assisted deliveries and the use of contraceptives among women of childbearing age

Programa Integral de Nutricin (PIN) (Integral Nutrition Program)

Food program (part of Programa Nacional de Asistencia Alimentaria [PRONAA])

Poor and extremely poor: children under 12, pregnant and lactating mothers and those at high nutritional risk

Programa de Complementacin Alimentaria (PCA) (Supplemental Feeding Program)

Food program (part of Programa Nacional de Asistencia Alimentaria [PRONAA])

Poor and extremely poor: children, people with TB, elderly, persons with disabilities, other vulnerable groups (victims of family violence, etc.)

Vaso de Leche (Glass of Milk program)

Food program

Poor and extremely poor: children between 0 and 13, pregnant mothers, elderly or those suffering from TB

3,792,261 total beneficiaries: 567,920 children from 0-3; 555,572 children from 3-6; 2,467,216 children from 6-12; 201,853 pregnant and lactating mothers, according to public accounts 306,762 public lunch recipients; 9,223 lunch recipients from benefic organizations; 6,957 lunch recipients at public shelters; 25,287 lunch recipients with TB, according to public accounts 3,215,100 beneficiaries according to public accounts

2006 (A fusion of 6 other food programs that started operating in 1992)

509 million nuevos soles

Past evaluations of the programmes that now are part of the PIN found: i) PANFAR program: nutritional effects conditioned to proper attention; ii) School breakfast: improved dietary intake and short-term memory. Increased attendance to school was non-significant.

2003 (Programs operating since 1992 were transferred to local governments that year)

128 million nuevos soles

The program has been transferred to local governments. Beneficiaries receive food and supplements through kitchens, shelters, among others.

The program has not been evaluated.

1985

363 million nuevos soles

Gives breakfast to beneficiaries 5 times a week. It is run directly by all provincial and district municipalities. It relies heavily on mothers' clubs.

The program has not been recently evaluated. Past evaluations found nonsignificant effects over nutritional variables

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