Sunday, May 04, 2014

Poverty and inequality in Latin america: New developments

A recent report (may the 3rd),done by the digital newspaper based on data gathered by the SEDLAC (Social economics data for Latin America and the Caribbean),focused on the poverty level in Latin America. There are two countries Uruguay and Chile, with poverty levels below 10% (12,4% and 14,4% respectively).The remaining ones, are Brazil (21%) , Costa Rica (24%),Venezuela and Peru (close to 25%).The continent as a whole, has a 34,6% rate of poverty level, almost ten percentage points, below the level of the nineties.- Poverty is a complex issue which depends upon a variety of factors and variables. Among factors, there are cultural and sociological ones such as either lack of ambitions or a weak sense of achievements, limited self esteem (Todaro 1982). Some variables, includes human capital endowment, low quality of education programs at basic and secondary levels, inefficiency in social policies, low wages, and an institutional framework not strong enough for steady economic growth. Poverty and inequality are not equivalent . While Poverty refers to those who do not have the ability of getting a basic set of goods, Inequality ,refers to how the total income is distributed among the total population. Thus, high poverty levels means that an important share of the population cannot get the basic goods with their earnings, while high inequality means that a small percentage of that population, get the higher share of total income. The Gini coefficient measure the inequality levels. It goes from “0” (perfect equality, everyone has the same income) to “1” (perfect inequality, one person has all the income).Most of Latin America countries are among the most unequal countries in the world with Gini coefficient in the range of 0,40-0,58. However, this coefficient has some flaws because can be manipulated throughout transitory bonus programs, which increase income levels for the bracket people belong to ,moving them upward and reducing the Gini coefficient while those bonus are in place. A better approach, is to have higher taxes which allows permanent increases in income levels throughout social programs. In most cases the empirical evidence indicates that the Gini coefficient decrease (improves)after taxes. However, in Latin American economies, this does not mean a decrease in poverty level. It may be the case that Gini coefficient improves, while poverty index deteriorates. There are few cases which have gotten both inequality and poverty ,moving in the downward direction (Norway), which means an effective and efficient social programs. Thus, higher taxes may be a necessary, but it is not a sufficient condition by itself to get at the same time, both a better poverty index and Gini coefficient . It follows, that it also requires on the one side, efficient complementary public policies, and on the other to become an effective tool for investment and growth. In other words, taxes (either low or high),must equilibrate efficiency with fairness.