Income disparities in the region are rivalled only by those in sub-Saharan Africa. Because inequality is usually lower in richer places, and Latin America's GDP per person is four times that of Africa, the region's inequality is extraordinary. The World Bank does not class a single country in the region as "low-inequality". Colombia and Guatemala are among the most unequal; Uruguay is less so, but there are no exceptions.
Inequality, measured by the Gini coefficient, rose through the 1990s, peaked around 2002 and then fell. Around 2014 the decline began to slow; recently it has flatlined. Two factors drove the improvement between 2000 and 2010. Government handouts—conditional cash-transfer programmes such as Bolsa Família in Brazil, which gave money to poor families if they sent children to school and for health check-ups—accounted for about 20% of the fall. Strong growth in wages for the poor, underpinned by a commodities boom, accounted for over half.
Real income per person in Latin America and the Caribbean increased by a dismal 4% in total between 2014 and 2023. In South Asia, by contrast, it increased by 46%.
More than half of the current generation's inequality is in effect inherited, largely as a result of parents' level of education and type of jobs, according to a paper by Paolo Brunori of the University of Florence. Richer toddlers get better food and attention, attend better (often private) schools, go on to university—where attendance strongly boosts earnings, in large part by helping students get formal jobs—while children from poorer families tend to end up in the region's large, less productive informal sector.
Latin American tax and welfare systems are strikingly bad at reducing inequality. Before taxes and redistribution, the region's income inequality is only slightly higher than in rich countries. But whereas taxes and transfers reduce the Gini coefficient by almost 40% in rich countries, in Latin America they reduce it by only about 5%. In about half the region, the net effect of the fiscal system actually increases poverty.
Personal income taxes, usually progressive, are worth just 2% of GDP across the region, compared with 8% in the OECD. (See also tax progressivity.) Latin America relies more heavily on indirect taxes such as VAT, which tend to be regressive. Transfer programmes are poorly targeted: only about half of people in poverty benefit, while about 40% of those not in poverty receive at least one kind of transfer, according to the Inter-American Development Bank.
Surveys by Matias Busso of the IDB in eight countries found that, while respondents are unhappy about inequality and support redistribution in theory, they are reluctant to pay extra taxes to fund it, in part because many mistrust the state.
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