Latin America and The Social Contract Patterns of Social Spending and Taxation

Latin America and the Social Contract: Patterns of Social Spending and Taxation Author(s): Karla Breceda, Jamele
Rigolini and Jaime Saavedra Source: Population and Development Review, Vol. 35, No. 4 (Dec., 2009), pp. 721-748 Published by: Population Council Stable URL: http://www.jstor.org/stable/25593684 . Accessed: 16/12/2013 13:26
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Latin America and Contract: the Social Patterns of Social
Spending
Karla Jamele Jaime Breceda Rigolini Saavedra
and Taxation
15 years, most Latin American countries have experienced on social services and transfer pay significant rises in public expenditures we will call briefly social spending. This increased spending is ments?what reflected GDP rose from an average of 12.2 percent of in higher taxation, which in 1990 to 16.3 percent in 2003. Among the questions raised by these trends are: Who benefits from higher social spending? Is the Latin American state headed toward a minimalist, liberal, US-style state, or toward a state? And will Latin European-style
In the
last
welfare more
social-democratic, comprehensive, of itswelfare states? America be able to continue financing the expansion Studies of social spending in Latin America (CEPAL 2006a; Lopez 2006) find it to be fairly flat across income quintiles, achieving little redistribution of wealth. These studies, however, look only at the spending side, whereas redistribution
countries, the United Kingdom, and the United States. Consis tentwith previous studies, we find absolute levels of social spending in Latin to be fairly flat across income quintiles?and, America for some countries, to even be regressive. This contrasts with social spending in the United Kingdom than do most progressive pattern of (which itself spends less on the poor countries), and brings Latin American welfare where social spending also remains fairly flat structure of taxation the much more
Latin American
is an equilibrium outcome of both spending and taxation. In this article we conduct an incidence analysis (i.e., an analysis dis aggregated by income groups) of both social spending and taxation for seven
other European states closer to the US model, across income quintiles. The
very similar to that of the United States: high Latin American countries to tax mostly the rich, a pattern also observed?al
in Latin America, too, is income inequality constrains
POPULATION
AND
DEVELOPMENT
REVIEW
35(4):
721-748
(DECEMBER
2009)
721
722
Latin
America
and
the
Social
Contract
the United States, while the United Kingdom is class to a greater extent. of social spending and taxation indicates that many Our comparison Latin American countries are headed rather than Eu toward a US-style though enabled to tax itsmiddle state. The fact that their tax revenues derive mainly ropean-style welfare from the rich, who can expect to receive little in return, is an obstacle to the state. As a proportion of their income the further expansion of the welfare rich in Latin America because must We be much of high income do not necessarily contribute more than in Europe, but inequality their overall contribution to tax revenues between
to a lesser extent?in
higher. also find a relationship
cal influence
social spending and countries' demographic corroborates the view that social spending of the relevant
of public progressiveness the share of the youth population, less likely to be able to advocate ones.
beneficiary groups. In particular, we find that is negatively correlated with spending in education a finding in accord with poor parents being on behalf of their children than wealthier
the degree of progressiveness of characteristics, a relationship that is in part determined by the politi
welfare
state, the recent increased socioeconomic instability inmany countries suggests the need for a stronger welfare state. Elites have to choose between which may lead to political struggle against strongly left-leaning movements, and social economic and confrontation meager gains, and long-term political ofmore inclusive social contracts.1 engaging in participatory development The next section presents an overview of social spending and taxation in Latin America. The following sections describe the data and methodology and present policy the results of our incidence analysis. A final section considers implications.
In contrast, the elderly poor, who vote and who often remain politically their case, which may be reflected involved, may be more effective inmaking in the observed flat spending on public health across income quintiles. trend toward a minimalist While the evidence points to a Latin American
the
Social
health
spending
and taxation in Latin America

social spending as all public resources health spent on education, care, and food pro subsidies, direct transfers
This article defines
reproductive (including family planning, grams), clean water, basic sanitary services, housing to the poor, social assistance, and social security (see also Ganuza, Leon, and from the incidence analy Sauma 1999). We deliberately exclude pensions
and fully sis, since their intertemporal nature and the mix of pay-as-you-go assess nature. to None redistributive make their it difficult funded systems to measure we include extend the incidence analysis theless, as a robustness for a subset of countries pensions not affect our findings. and show that considering pensions does
Karla
Breceda
/ Jamele
Rigolini
/ Jaime
Saavedra
723
Per capita social spending varies considerably among Latin American In 2004 it ranged from 6.1 percent of GDP in Guatemala to 19.6 saw a in Uruguay increas percent (see Figure 1). The 1990s generalized countries. ing trend in expenditures per capita social spending
so that by 2002-03 the region's (Molina 2003), a 39 percent increase from the reached US$610, 1990-91 level of US$440 (in constant 2000 US$)(CEPAL 2006a). Accord the efforts made for almost 15 years to bring about (2006a), ing to CEPAL
FIGURE 1 Social spending as a percent of GDP per capita in Latin American countries, 1990 and 2004
|H__fl__HH_H__^____?_
HI
1990
5
Percent
10
of GDP per capita
15
20
NOTE: When data for2004 were missing, data from 2001-03 have been used. SOURCE: CEPAL (2006b).
724
Latin
America
and
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Social
Contract
rise in public spending on social sectors are among the most in the recent development remarkable achievements of the great majority of Latin American countries. in countries' levels of Despite positive long-term trends, differences social spending have not been narrowed: the region's poorest countries still less than the richest (CEPAL 2006a). Social spending in the spend much a strong pro-cyclical behavior, being the low region has also demonstrated
a sustainable
FIGURE
Tax
revenues
as
1990 and 2004
a percent
of GDP
in Latin
American
countries,
HHHHHHHBHHHHIHHH^HIHI
HHHI
1WU
10
15
Percent
20
of GDP
25
30
35
40
SOURCE: Gomez
Sabaini
(2005).
Karla
Breceda
/ Jamele
Rigolini
/ Jaime
Saavedra
725
it has been most needed (see, among others, Molina 2000; CEPAL 2001; Machinea 2005). Similarly, tax revenues vary widely across countries: from 7 percent of GDP in Haiti (and 9 percent to 36 percent of GDP in Brazil (Figure 2). Tax revenues also in Venezuela) increased substantially during the 1990s: excluding pensions and other insur est when and where 2003; Mostajo ance 2004
1990 and contributions, on average they rose by 15 percent between Sabaini Tanzi Gomez 2000; 2005). (see On average, countries that had relatively high tax rates at the end of lower faster growth in their tax revenues than countries experienced levels, so that they remained above the regional average in the and 2000s countries like Brazil, Uruguay, (Bird 2003). Thus, while
the 1970s with 1990s
to have tax revenues around 25 percent of GDP, continue and Argentina countries like Guatemala, have tax revenues Haiti, Ecuador, and Venezuela around 10 percent of GDP (Gomez Sabaini 2005). It should be kept inmind that countries with revenues from publicly owned commodities do not need to raise as much revenue
looking at joint patterns of social spending and taxation, as in Figure 3,we observe only a moderate relationship between the two: although no country finds itself completely off the diagonal in the figure (i.e., high When
such through the tax system as countries without commodities. This is the case forVenezuela, Mexico, Ecuador, and a few other countries that show relatively low average tax revenues (Tanzi 2000).
inflate government revenues inmany countries The (Tanzi 2000). aggregate analysis shows large variations across countries: some while have higher social spending than many OECD countries, average
spending and low taxation, or vice-versa), most countries do not exhibit a tax revenues and spending. This may be because some strong link between countries have priorities other than social spending; another likely cause is that rents from commodities
FIGURE
Latin
3 Patterns
American
of social spending and taxation

circa 2000 spending _Low Guatemala Medium spending Mexico
in selected
countries,
High
spending
Low
taxation
Venezuela Paraguay Dominican Republic El Salvador Colombia Honduras Nicaragua Argentina Peru Chile
m, ,. Medium
^ ?. taxation
High
taxation
Brazil Uruguay
SOURCE:
Lindert et al. (2006) for social spending; Gomez Sabaini
(2005) for taxation.
726
Latin
America
and
the
Social
Contract
spending or poor political choices often lead to flat or even regressive spend ing. In addition to the levels, it is therefore important to look at the degree to this is the main contribution of our analysis. which spending is progressive:
levels of social spending spending in Latin America remains lower. Aggregate tell only part of the story, because high levels of spending do not necessarily imply a pro-poor welfare state: among other reasons, poorly targeted social
Data
We
and methodology
complement existing studies of the Latin American welfare states in two we at both social spending and taxation. Second, we attempt look ways. First, to separate pensions from spending on education, health, and direct transfers. Because American is easily estimated, most comparative studies of the Latin state focus on social security spending (Huber 1996; Bar rientos 2004; Filgueira 2004 and 2005; Gough et al. 2004). These studies, in addition to ignoring relevant redistributive categories such as spending on coverage welfare contain serious limitations. For instance, they look at aggregate education, such as coverage, but they do not estimate how much each characteristics in income quintile receives. Moreover, the analysis, by including pensions and government's contributions, they cannot distinguish between people's
since pay-as-you-go pensions (the most a redistribution pattern present complex deal with conduct
in determining net levels document, plays a major role in Latin America of redistribution. The countries we study are Argentina, Bolivia, Colombia, Honduras, and the United Kingdom and Peru for Latin America, Mexico, Nicaragua, Our country sample in Latin America and the United States for the OECD. we covers
the difficulty of estimating our analysis of social spending and taxation mainly without refer ence to pensions, as mentioned earlier. Some recent studies have begun look social spending (see, for instance, Lindert et al. 2006). ing at disaggregated these studies do not look at the taxation component, which, as Nonetheless,
common form in Latin America) across people and generations.2 To the redistributive effect of pensions, we
services to all or almost all (Argentina, Chile, and Uruguay); a is covered by social services the population dual welfare state, where 2) a in schemes stratified manner, with a very large and income-maintenance remaining outside the state protection system (Brazil, part of the population and basic health
the region's main welfare systems. Filgueira (2004 and 2005) finds is spent state in Latin America based on how much three types of welfare on to resources and it is amount the social how devoted of the system) (i.e., of and the levels its sectoral distribution, spent (i.e., the degree of coverage, services given): 1) a welfare state with universal or near-universal coverage
and 3) exclusionary welfare and Venezuela); Panama, Colombia, Mexico, a has access to the population fraction of where states, small, privileged only
Karla
Breceda
/ Jamele
Rigolini
/ Jaime
Saavedra
727
social protection (Bolivia, Ecuador, 2006). (see also Hernandez
El Salvador,
Guatemala, we used
and Honduras) to compute social have comple
mented
by drawing on secondary sources (see Appendix similar to ours. Table 1), provided they have used a methodology We first analyze social spending and taxation separately and then look our calculations
at net patterns.
summarizes the methodology The Appendix taxation and spending by quintiles of household
income. We
Social
spending
social spending on cash transfers, public health, and Figure 4 summarizes social spending in our Latin Ameri education by income quintile. Average can sample (which we will refer to simply as Latin America) to corresponds of GDP per capita, which remains significantly lower than social in the United Kingdom (14 percent) but similar to the United spending States (11 percent). There are significant differences across countries: Peru, for instance, spends 6 percent of GDP per capita for each individual, while Argentina, Bolivia, and Honduras spend twice as much. contrast between 10 percent
107 percent. Variation, however, is large: in Honduras?the least pro-poor our state in poorest quintile receives 57 percent of spending sample?the what the richest quintile receives, in Colombia 108 percent. Pro-poor spend or less than in the United in to behavior is Latin America ing comparable of the States, and all countries remain far removed from the progressiveness
European welfare states.
of social spending on the richest quintile, as against 233 percent for the United Latin America is closer to the US, where the equivalent figure is Kingdom.
In terms of the pro-poor impact of social spending, we observe a sharp In Latin America, Latin America and the United Kingdom. on average, social spending on the poorest quintile corresponds to 92 percent
As a consequence of lower levels of spending and lower progressiveness, social spending for the poorest income quintile is also much lower in Latin America: it averages 9.9 percent of GDP per capita, a figure very similar to that for the United States (10.4 percent), but much lower than the United Kingdom Health Health on the poorest quintile in Latin America vary from 1.9 expenditures and Peru to 4.7 percent in Argentina, percent of GDP per capita inMexico and average 3 percent. The country that spends the most on health for the amounts similar to the United States (4.6 percent) poor?Argentina?spends but remains well below the level of the United Kingdom (7.6 percent). (20.3 percent).
728
Latin
America
and
the
Social
Contract
FIGURE
percent
Social
per
of GDP
spending
capita,
selected
and taxation by income quintile

Latin American
as a
United Kingdom,
Argentina_
and United
States, circa 1997-2004
countries,
Bolivia_
_^5 -55-
_ >r: _65l-1 I-1
I
Colombia_
II
III
IV
V
Honduras_
II
III
IV
-55
-65'-' '-'
II
III
IV
V
Mexico
I
Nicaragua
II
III
IV
15
-55 -65'-1
'
II
Income
III
quintile
IV
V
Income
II
III
quintile
IV
Karla
Breceda
/ Jamele
Rigolini
/ Jaime
Saavedra
729
FIGURE
4 (continued)
Peru_
United
Kingdom_
-15 ^ Oh
- H
W
{
^^
Z~25 15
-65 I-1 I I
United |-1
B
II
States
V
Income Social spending: 1 Other social spending
III
IV
II
III
quintile
IV
-'
'
--
,_
1 L**j_L__i VJ&..i.??.i'.,."....*. A CO
ii &
S
~15
-25 -
_--" rm
^B ^^ ^o I
____.
Education
2 ?
oS ~45 " -?
Taxation:
tax 1 Income
VAT/sales tax Other taxes
|^H
I-1 _65 L---J flf^l
II Income
III quintile 1 and 2.
IV
SOURCE:
See Appendix Tables
with
public health spending is clearly pro-rich: on aver age, governments spend on the poorest income quintile 70 percent of what on the richest. In addition, many Latin American countries have they spend a two-tier health system (usually linked to people's work status), in contrast Except the universal system of the United Kingdom. Accordingly, uni income, while spending in Latin America declines with people's health spending?which still has a redistributive component, health
in Nicaragua
versal health
contributory but only among participants?sharply increases with income (Figure 5). This dual health system ismore reminiscent of the US health system than of the universal European systems.
730
Latin
America
and
the
Social
Contract
FIGURE quintile
5 Universal versus contributory health spending by income in selected Latin American countries, circa 1997-2004
Colombia 'q. Contributory ^ -~ -""" __.. ?'II .? I
Argentina
.04
J Q2 ^^^^1^
^ o .
h-i-1-1-H
[?.~.~.~~-?~-.-^-^-?.
_
O Universal ~^~?
Ur^^
^ ?--^
II
Peru I-1
III
IV
I^nr-j h-1-1-1-r1
I
^^-^>^_
II
III
IV
Mexico .06 H< S a* ^ .04 .02 0
|-1 . ., >-h w Contributory ? ---. _Universal ^--^ ^ ."-. Contributory \ ._^^. [--?.?*n-1-1-1-n _^--^^ TT". 1 ?- Universal r
.^..^..^-..-= ? O ? ?-c "r?.??.?-?-.-?-1 ^i-1-1-1-r1
II
Income
III
quintile
IV
II
III
quintile
IV
Income
SOURCE:
See Appendix Tables 1 and 2.
Education to per capita GDP, most countries in our Latin American sample in to those the in United vest in the education of the poor amounts comparable American Latin States: the United and the average public educa Kingdom to 4.7 percent of GDP per tion spending for the poorest quintile corresponds Relative capita, as against United States.3 There education 5.3 percent in the United Kingdom and 3.1 percent
in the
than the United States, which spends on the poorest income 59 percent of what it spends on the richest, but no country ap quintile only of the United Kingdom the progressiveness (228 percent). proaches of public education The composition spending also varies considerably show that more than 50 per (2006a) by income quintile. Data from CEPAL progressiveness
are large variations in progressiveness: Honduras spends on the it spends for the of the poorest quintile only 46 percent of what rises to 168 percent in Colombia. Other richest quintile, while the percentage than Honduras, however, all countries in the sample show a higher level of
cent of public spending on primary education in Latin America goes to the two poorest income quintiles, while more than 70 percent of spending on higher education goes to the two richest income quintiles. Although we lack data on public education spending at this level of disaggregation, and the United States for the United Kingdom of educational it is likely that the composition
Karla
Breceda
/ Jamele
Rigolini
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Saavedra
731
spending in both countries than it is in Latin America. Direct transfers
ismore
evenly
spread
across
income
quintiles
Two other relevant differences make the structure of social spending in Latin America more similar to that of the United States than to the United Kingdom. First, despite the recent boost from large-scale conditional cash transfer pro and Bolsa Escola in Brazil, cash transfers Mexico grams such as Oportunidades in to the poor in Latin America still represent a small proportion of social spend in the United Kingdom While per capita cash transfers to the poorest ing.4 income quintile amount to 6.9 percent of GDP per capita, the average in Latin
America
In addition United Kingdom. cash transfers can be more easily targeted to the poorest income quintile than subsidies, which tend to benefit the whole population in equally?or, the case of gasoline subsidies, even to disproportionately benefit the richest income quintiles. Social spending in Latin America on balance ismuch less progressive than in the United Kingdom, and closer in structure to that of the United States. Without considering taxation itwould be difficult to explain such a simple political
the more
In our sample, this type of social figure similar to that in the United
countries rely much more heavily on subsi Second, Latin American as or dies?such for fuel food?than does the United Kingdom. Indeed, most ofwhat we denote as "Other social spending" in Figure 4 consists of subsidies.
is less than one percent. The country spending the most?Mexico? transfers only 1.1 percent to the poor, about the same as the United States.
1.9 percent of GDP, a spending averages and four times States, greater than in the to the obvious distortions that subsidies create,
pattern:
the
economy
spending
arguments would
should be pro-poor;
predict
hence
that the higher

Latin Amer
inequality,
spend significantly more on the poor than the United Kingdom not than the United States). Next, however, we (though necessarily more show that taxation changes the picture significantly. ica should Taxation Here we analyze how much each income quintile contributes to total taxes collected by the government. We divide taxation into three categories: in come taxes, value-added include taxes, and all other types of taxes, which property taxes, import taxes, and such specific taxes as contributions to pub It should systems and vehicle taxes (for details see the Appendix). be noted that we adjust taxation toNational Account data, hence we estimate of error) what the income quintiles de facto contribute (with some margin to total taxation. Adjusting to National Accounts is likely to reduce the bias lic health
732
Latin
America
and
the
Social
Contract
caused
by two important factors: tax evasion in Latin America the richest income quintile total income total income income
would
actually have been paid assuming no tax evasion. Similarly, because the poorest quintile pays on average only 1.2 percent of total income taxes, the bias from informal activity is also likely to be very small.
for by the fact that taxes, most tax evasion is already accounted taxes collected by the government?which approximately match taxes paid by the richest quintile?are lower than amounts that
and informal activity. Because pays on average 82 percent of
taxation by income quintile. On average in Latin Figure 6 summarizes the tax categories we consider generate revenues equivalent to 15 America, revenues as a of GDP: of GDP therefore, lower, percent although proportion are close to those in the United Kingdom and the United States (19 percent) (16 percent). To be sure, total government are higher in the two OECD countries?36 and 25 percent in the United States. Other identified by household income quintiles?such enues. Our estimates revenues in proportion to GDP percent in the United Kingdom forms of taxation that cannot be
of natural resources, and in none of the study countries do the exploitation to pension estimates consider contributions the taxes systems. Nonetheless, we do include are those that most directly affect individuals and hence are likely to influence redistributive politics. The share of taxation paid by the richest
surveys or cannot be easily attributed to specific as corporate taxes?generate rev large government revenues from for Latin America also omit government
America
income quintile in Latin 61 is This much than the share averages percent. higher paid by the in richest quintile the United Kingdom (43 percent) but similar towhat the richest quintile contributes in the United States (58 percent). On average the
FIGURE
percent 80
6 Taxation
of GDP per
of the richest and poorest

capita in selected Latin
income quintiles
countries,
as a
American
United Kingdom,
|-1 H
and United
quintile
States, circa 1997-2004

h
Poorest
Richest quintile H
__
^H
^H
I I
^H
^1
^H
I
I
^H
^1
^1
B
Nicaragua
^M I
^1
Bolivia SOURCE:
US
Mexico
UK
Colombia
Honduras
Peru
Argentina
Karla
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Rigolini
/ Jaime
Saavedra
733
in taxes than pays 22 times more to the multiple for the United States (19 times) the poorest quintile?close and much higher than the United Kingdom (6 times). richest income quintile in Latin America There are also differences and the United
Kingdom tax collection, while taxes play a much more prominent role. On average, income services-related taxes account for 54 percent of revenues from all taxes we consider in the
in the composition of taxes. In the United taxes income the make States, largest contribution to taxes and other goods- and in Latin America value-added
and for 75 percent in the United States, whereas United Kingdom, they rep resent only 22 percent of the revenues in Latin America of (with a maximum 43 percent inMexico). In contrast, value-added taxes account for 61 percent of revenues from all taxes we consider in Latin America, against 34 percent in the United Kingdom and 11 percent in the United States. These differences are not surprising, since tax composition has been shown level of development and Mookherjee (see, e.g., Das-Gupta On the basis of observed to evolve with the 1998). patterns of spending and taxation, we argue combined with the structure of taxation is an im
that high inequality social spending inmany Latin American countries. pediment to progressive Given the large share the rich and the middle class already contribute to taxation (the result of high income inequality), we see a need inmany Latin American countries of the population, since the rich perceive to direct some of the spending toward these segments limiting the potential for progressive spending. Moreover,
next
fewer benefits to themselves from public transfers, to tax revenues may limit the potential for their already high contribution increasing overall social spending. The following sections provide some foun dation to this argument.
Net transfers
Countries may be said to engage in pro-poor spending only if the net sum of transfers received minus taxes paid favors the poorest quintiles, since if ev erybody were to receive an amount equal to their contribution there would be de facto no redistribution ofwealth. Here we compare net transfers (that is, taxes paid) in Latin America with net transfers in transfers received, minus the United Kingdom and the United States. As we explain in the appendix, because of problems in measuring per capita income for each quintile, we limit the analysis to absolute amounts redistributed. Given their high income countries would engage in lower pro-poor spend inequality, Latin American net were as a proportion of individual income. In if transfers measured ing
what
follows, we therefore do not judge the capability of the richest quintiles to contribute more to government spending (which is likely to be related to relative taxation), but rather their willingness, which ismore likely related to how much, in net terms, they contribute to the welfare state.
734
Latin
America
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Contract
7 shows that in all the countries considered, net transfers are in other words, redistribution occurs. It also shows that in net pro-poor: terms Latin America spends less on the poorest quintile, but at the same time taxes the rich more. There are, however, significant differences in the In Bolivia?the levels of redistribution. least pro-poor spending state in our Figure
amount the richest income quintile is taxed is 2.7 times more sample?the than the amount the poorest quintile receives. In contrast, the ratio in Peru is 19.5. The analysis of joint spending and taxation also suggests that, while in the United Kingdom redistribution occurs through both taxation and social
To what extent is it possible to increase taxes paid by the rich? It is dif ficult to provide a conclusive answer. On the one hand, tax revenues in Latin are substantially America lower than in OECD countries or in the EU (see on the other hand, the richest income quintile already contributes Figure 8); a much and EU (see Figure 9). The larger share of taxation than in the OECD roots of this apparent incongruity lie largely in the high levels of income in Latin American countries have equality throughout Latin America. Because higher income inequality than OECD and EU countries, to support simi lar levels of spending the richest income quintile must be taxed more heavily, its income) the richest quintile
social spending and taxation), (measured by substantial pro-poor spending in Latin America and the United States redistribution occurs mostly through higher taxation of the rich (see Figure 4).
much
at least in absolute
terms. To be sure, in relative terms (i.e., as a percentage of does not necessarily contribute more than it
FIGURE
American
7 Net transfers as a percent

countries, United Kingdom, All 20 1.) I.
of GDP per capita

and United States, countries Latin American
in selected Latin
circa average, 1997-2004 UK, US
nj
:::::"r^^. Amertca:.:^^^_?.
-"^ l_J_I__1__I_lJ Income SOURCE: quintile
I II III V IV
U_I_Jl._I_L.
III IV V II
quintile
Income
Karla
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/ Jamele
Rigolini
/ Jaime
Saavedra
735
FIGURE 8 Tax revenues as a percent of GDP per capita in selected Latin American countries, United Kingdom, United States, EU, and OECD, circa 1990-2000
50 I
mm
_H
__i
___
__i
0-4
sO mwrnxa BHii ISlll! Hiiii Ss
H
?4Jlll!
^^^
^^H
^^H
^^M
flU Hi HI hH
Mexico SOURCE: OECD
Peru
Bolivia Honduras
Colombia Argentina (2004). and Tromben
Nicaragua
US
UK
OECD
EU
(2002) and Martner
in OECD or EU countries, and therefore it should be possible to increase taxation. Nonetheless, the rich in Latin America contribute a sub because even further their stantial share of government contribution revenue, raising a on strain the social contract. The rich may resent contributing may impose does
excessively to a welfare state that gives little back to them. This argument may in light of the poor quality of public services in acquire increased relevance to pay taxes is strongly related Latin America. Research finds that willingness
to provide efficient public services (see, for to the ability of the government and Palda 2004).5 instance, Becker et al. 1987; Brosio et al. 2002; Hanousek 9 Net transfers of the richest and poorest
Latin American countries, United Kingdom, circa |-;-1 1997-2004
FIGURE
in selected States, 80
income quintiles
and United
H Net amount received by poorest quintile Net amount paid by richest quintile . Difference
260.
' LjiMHifflt
Bolivia UK SOURCE: Appendix Tables US 1 and 2. Mexico Colombia Nicaragua Honduras Peru Argentina
736
Latin
America
and
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Social
Contract
Pensions
As we mentioned, the previous analysis did not consider pensions. Despite a trend toward fully funded systems, most Latin American systems pension it is still have large pay-as-you-go components (see Gill et al. 2004). While fully funded relatively simple to determine how much are linked to individual accounts, since funds managed systems redistribute, it is difficult to assess
FIGURE
by and income
10 Social
quintile circa
spending
as
Colombia, 30 20 -
a percent 1997-2004 -
(with pensions
of GDP per
included)
capita,
and taxation
Mexico,
Bolivia,
Bolivia
Mexico .>iv?;
io ^^^
I
*
? -^
-
EiihI
bHfld
S?3 [^ ^^
^H|
~ ^^_
pi ^B5=^H-p^^
^^_
^^^
g^gj|
Mg?
-30
-50
"
II
III
IV
II
Income
III
quintile
IV
30 J
Colombia
. _Social
0 Pill [===]
^^ co ^=
j-?j
ggg ^gg
j-1
1 n tf^fc^l
If^K
Pensions
spending: social spending
^^
i^B
H Cashtransfers
B
Other
Health
Education
^_-j?
~ u " ^^^^ q ^^H ^ a^H
c?
_,q
Taxation/contributions: Incometax D VAT/salestax

Other 11 Social taxes security contributions
-40
-50
"
I
SOURCE:
II
Income
III
quintile
IV
Karla
Breceda
/ Jamele
Rigolini
/ Jaime
Saavedra
737
the redistributive nature of pay-as-you-go
not only across income quintiles, these caveats, strong evidence Despite pensions age remains are often biased
systems, since redistribution occurs but also over time.
benefit the rich. fully funded system, pensions overwhelmingly The pro-rich orientation of pensions may appear to contradict our argu ment that the rich in Latin America contribute the most to the welfare state without
low among our data. Figure 10 shows the extent to which net transfers vary when by total social security contributions and total pensions paid are considered.6 Re from the (and contributors to them) are overwhelmingly cipients of pensions a to richest quintile, and, except inMexico, which recently switched largely
suggests that in Latin America toward the richest income quintile and that cover the poor (Gill et al. 2004). This finding is supported
receiving much back, but it does not do so. Pension contributions are in addition to general taxation, and payments at retirement are limited to to past contri individuals who contributed and are somewhat proportional butions. Pension systems are therefore largely separated from the rest of the caused state, and their pro-rich by the high contributions orientation of the rich. does little to reduce the strain
welfare
Social
spending
and demography
Social spending is intrinsically related to demographic trends: countries with are expected to spend more on education, while coun younger populations tries with older populations may choose to emphasize pensions and public health
only spend higher absolute amounts on education, but also place stronger for the poor, since this will pro emphasis on investing in public education mote themediumand long-term income-generating prospects of the poorest quintiles and, ultimately, favor poverty reduction and economic growth. Here we relate the progressiveness of spending on both education and health to current and for pensions tion and Results future demographic characteristics. We for reasons given earlier. refrain from doing this
spending. To the extent that demography affects social spending priori ties, it should be reflected in changes in both the level and the progressiveness of spending. Countries with a younger population, for instance, should not
share of youth in the population and the progressiveness of public spending on education to extent the which is in con (i.e., public spending pro-poor); the correlation between public health spending and the share of the trast, remains flat. Figures 11 and 12 present the case in elderly in the population a more formal manner. by their degree They sort public spending on education and health of progressiveness?as measured by the slope of a regression
reveal a striking difference between public spending on educa correlation between the spending on health. We find a negative
738
Latin
America
and
the
Social
Contract
FIGURE 11 Youth population (aged 0-14) as a percent of total population in 2005 and as projected in 2020 and progressiveness of education spending in selected Latin American countries, United Kingdom, and United States, circa 1997-2004
50 I Pop. 0-14 (2005) M Pop. 0-14 (2020) Progressiveness
US H
Nicaragua
Bolivia
Mexico
Argentina
Peru
Colombia
UK
-20
Honduras I
more pro-poor. (See endnote 7.) NOTE: Higher values of progressiveness mean that spending is SOURCE: Authors' calculations and UN Population Division 2008 (medium-variant projections).
line relating spending youth (for education) Progressiveness cal influence wielded
to income quintile7?and with the share of compare it in the population. and the elderly (for health) of spending is, to a certain extent, related to the politi
by the relevant beneficiary group: youth (particularly if they are poor) have traditionally been given little voice. It should therefore come as no surprise that progressiveness of public spending on education correlates
ismanifest in flat spending on effective inmaking their voices heard, which across income health (correlation 0.05). public quintiles What trends have for the development of implications do demographic the welfare state in Latin America? The slow aging of the population (see the
(the correla negatively with the share of the youth population in our Latin American tion is -0.72 since poor parents are less able sample), ones. In contrast, the to advocate on behalf of their children than wealthier elderly poor, who vote and who often are politically involved, may be more
since even themost progressive Latin American welfare states spend consider (and remain ably less on public health for the poor than the United Kingdom more in line with US spending patterns).
estimates for 2020 in Figures 11 and 12) is likely to increase the proportion and political influence of the elderly, and thus increase the progressiveness of some categories of social spending, such as on health. Whether this shiftwill be enough to engender a major reform of the welfare state remains doubtful,
Karla
Breceda
/ Jamele
Rigolini
/ Jaime
Saavedra
739
FIGURE 12 Elderly population (aged 65+) as a percent of total population in 2005 and as projected in 2020 and progressiveness of health spending in
selected I Pop. 65+ (2005) H Pop. 65+ (2020) Progressiveness j]| Latin American
circa 1997-2004
20
countries,
United
Kingdom,
and
United
States,
Peru?B^
" Argentina
Honduras
Colombia_^Mexico_Bolivia
US _
Nicaragua__
UK
-10
more pro-poor. (See endnote 7.) NOTE: Higher values of progressiveness mean that spending is SOURCE: Authors' calculations and UN Population Division 2008 (medium-variant projections).
The social contract in Latin America: Future directions

Social spending inmany Latin American countries remains below the levels of European welfare the level of spending in the states, but it is approaching United States. Our comparison indicates thatmany Latin American countries are headed toward a minimalist, more comprehensive, ture of social spending tends to be Second, as in the United States, social spending in Latin America flat across income quintiles, while in the United Kingdom (as well as inmany European welfare states) it is strongly progressive. Finally, the share of taxa state rather than toward a liberal, US-style social-democratic, First, the struc European model. and taxation follows closely that of the United States.
The high contribution of the rich to tax revenues in Latin America is a to to be serious state. obstacle the Al further of the welfare likely expansion though as a proportion of their income the rich do not necessarily contribute more than in Europe, because of high income inequality their contributions to tax revenues are much higher than in the United in some countries, higher than in Europe?and, States. Latin American countries thus seem to be
tion paid by the richest income quintile in Latin America is close towhat the richest quintile contributes in the United States, and considerably more than the equivalent in the United Kingdom. contribution
740
Latin
America
and
the
Social
Contract
run keeps inequalities high. How to induce the rich to contribute even more remains a serious challenge. can be found. We believe, however, that a way out of this dilemma of economic social Improving equality opportunity through spending may if the have a beneficial effect on economic performance (World Bank 2006b): welfare
trapped in a vicious cycle inwhich high income inequality prevents increasing tax revenues, which in turn prevents the state from improving the economic of the population and which in the long prospects of the poorest members
state is gradually expanded, the poor may begin to contribute higher elites because of their strong ties to the government, shares to it. Moreover, in Latin America still benefit from loopholes and tax breaks compromising the efficiency of tax collection and economic performance as a whole (see, for instance, Guerrero et al. 2006 on Mexico). Closing tax loopholes and ending inefficient tax breaks while also raising social spending could lead to a stron
tax reform 1990 was the newly installed government's ability to negotiate as one of its first steps. The elites (businesses and high-income earners, who would that, pay about two-thirds of the new tax burden) were persuaded in the midst of uncertainty, higher taxation was a small price to pay for a of tax reform and resumption of socioeconomic stability. The combination a was toward social step building a stronger social policy objectives explicit contract, and the reform was approved by Congress six weeks after the new took office (for details see Boylan Concertacion government 1996). Chile has remains to its reform coverage system. Although pension recently begun reforms aimed at achieving is proposing low, the government extremely incentives that are compat with universal coverage that is fiscally sustainable, of the system. Income ible with retaining individual savings as the mainstay remains of redistribution is and the still however, subject high, inequality,
ger social contract that would improve overall economic performance. The example of Chile in the 1990s suggests that changes in the social contract leading to increased social spending are possible. One of the key in elements of the Chilean process that started with the return to democracy
high on the policy agenda. If improving the social contract becomes would need to be taken soon. The
a goal across the region, action recent increased socioeconomic instabil
countries underlines both the need for income ity inmany Latin American redistribution and its apparent inevitability. Elites will face a choice: either to political struggle against strongly left-leaning movements, which may lead or social and economic gains, long-term political confrontation and meager engaging in a more social contracts. participatory form of development with more inclusive
Karla
Breceda
/ Jamele
Rigolini
/ Jaime
Saavedra
741
Appendix:
To perform
Methodology
the incidence analysis
for the incidence analysis

of social spending and taxation, we gathered data
on social spending and government revenues at the national level, disaggregated by spending and revenue category (i.e., spending on primary education and public
universal from health, or revenues National such and as who the from income We also and VAT taxes). These data on usually spending come and a country's rules, taxes, Account. is eligible level collected direct information transfer,
taxation of income
for a specific
the progressiveness good. In
of value-added
taxes
for each
undertaking this exercise, one of the difficultieswas to determine the share of social spending and taxation actually received or paid by households. Generally, identifying taxes paid by households required more assumptions than those needed to identify the elements of social spending aimed at households, although the treatment of administrative and overhead expenses made the spending side of the equation as
challenging as the taxation side. allocated social spending and taxation among households. In a second step, we
consumption
Each tax or social spending itemwas allocated according to household members' use of particular programs and to assumptions about the incidence of specific programs or taxes. Finally, households were ranked by income level and split into income Although this methodology represents one of the best ways to study the incidence of social spending and taxation, ithas some limitations. Dilnot et al. 1990 point out the potential inconsistency in assuming "both perfectly inelastic commodity demands (in order to attribute all indirect taxes to consumption), and perfectly inelastic factor supplies (in order to attribute all income taxes to labor)" (p. 211). Similarly, authors who use general equilibrium models to estimate tax and spending incidence contend that our methodology fails to account for the consumer surplus frompublic goods and be equal to the value of the benefit to the households
second-order cidence Walle studies states, In fact, we weight and use losses effects on welfare and ignores de Walle be behavioral (1996). assumed highlighted "It should not by Van for the marginal welfare costs of taxation. Also, assuming the unit quintiles.
fails to capture some important

responses?limitations of in as Van models de these caveats, complicated
cost of provision
to
Despite
will produce better or fundamentally different policy advice"

refrain (losses and from estimating of economic services are tax-shifting efficiency distorted) that parameters can occur results
automatically
that more
(1996: 24).
or any measure of dead prices equilibrium these
when from
are likely to be sensitive to parameter specifications, so that it would not be possible

to estimate these parameters as and measures
of goods
because
estimations
here (see, e.g., Selden andWasylenko

1999). income Moreover, previously stated,
consistently aim is simpler:
for all
countries
analyzed
1999;Wolff, Zacharias, and Caner 2004; Harris

our we seek only to determine
the broad distributional patterns of actual tax payments and social spending across
groups. we have also given a good deal of attention to comparability those issues. In the analysis
Although studies look at disaggregated social spending in Latin America

2006a), in addition to our own computations we have selected only
(e.g., CEPAL
sources
that simultaneously estimated disaggregated spending in education, health, and direct
742
Latin
America
and
the
Social
Contract
We only considered countries for which both social spending and taxation transfers. could be retrieved (or computed by us), and that adjusted all figures toNational Ac count data. The latter requirement led us to exclude studies of some Latin American countries, but we thereby gained in comparability and ease of data interpretation. In particular, studies that do not adjust their estimates toNational Account data rely on respondents' answers not only about participation inwelfare programs (or hospital
and school attendance), biases, by To be adjusting of tax sure, but also about among we amounts spent or and Account collected underreporting received, richest data, we leading income also across to clear quintiles. mitigate income and underreporting Moreover, the problem quintiles. especially our since the poorest to National allocate actual
estimates
evasion, given
taxes
the tendency of household surveys tomiss the richest households, our income tax most Latin American countries income allocation is likely to be biased. Nonetheless, in
taxes represent a small proportion of total taxes; and, most importantly, since average
asymmetric
tax evasion,
of income,
income of the richest quintile is likely to be underestimated, our resultswould actually be strengthened by correct reporting of income. In contrastwith previous studies (see, e.g., Engel et al. 1998; CEPAL 2006a; Perry
et al. quintiles 2006), and we refrain from using taxes. household As previously income stated, except to compute income income suffers allocate income household
from serious underreporting problems. While this only marginally affects the income quintile classification (because the richesthouseholds would be classified into the rich est quintile anyway), it can severely affect the estimation of how much each quintile pays and receives as a proportion of its income.8 Although this self-imposed constraint affects our analytical capability, such as the possibility to quantify the redistributive
power of taxes and transfers by computing Gini coefficients both before and after redistribution, we believe that presenting only the absolute amounts redistributed strongly diminishes comparability problems.
Finally, divided ization by that we look at social GDP for the spending per capita and taxes received The and paid by each individual a normal a better the average corrects between is, however, urban in the country. capability" latter represents allowing believe
"spending issue that we
of each
country, that we
comparison There
countries. one fail to address and does affect
the redistributive impact of social spending: differential public service quality, espe
cially taken access, between and rural areas. that some If the quality public across of public such income service provision were into account, would show it is likely more services, as education quintiles. and water
regressive
patterns
Gasto de Hogares los
de Vida Condiciones
Hogares
Consumer Finances Federal (2004) Survey Reserve's of
terio 2004
de
Economia
Peru
2004
ia
Own calculations
Calidad Colombia Avila (2004) Mahecha Vida Cruz Lasso 2003 Encuesta and de (2003b) Sabaini Nicaragua Own Gomez 2001 Encuesta calculations de Gastos Ingresos los e Own Own Encuesta Nacional (2002) Rossignolo Hogares and calculations (2003a) World (2006a) Bank Sabaini Gomez 2004 Honduras de Nacional Encuesta Ingreso - Encuesta Santieri, Gomez Nacional de Gastos de los (2004) Credito (2004) Publico Gastos de los Hogares Own Encuesta Continua de Hogares Secretaria Mexico 2002 Hacienda de y de Secretaria Hacienda Nacional Encuesta Ingresos y calculations Sabaini, Wolff, United States 2000 Zacharias, Wolff, Caner Current Zacharias, Population and Survey calculations (2006) United Kingdom 2003-04 Jones, Wallis and Lloyd, Jones, Lloyd, and Wallis Expenditure and Food Survey
de
Hogares
sobre
Transfers Country Year Taxes Survey used
(2004)
APPENDIX TABLE 1 Data sources
744 APPENDIX percent TABLE 2 Social of GDP per capita and
Latin
America
and income
the
Social as a
Contract
spending
taxation
per
quintile
_I_II_in_IV_V Argentina tax Income -0.22 VAT/salestax Other Contributions Education Cash Other transfers social spending to social taxes security -2.31 -1.20 0.00 4.58 3.84 Health 0.00 4.30 0.00 Pensions -0.40 -4.15 -2.20 0.00 4.29 3.65 0.00 3.47 0.00 -0.68 -6.58 -3.56 0.00 4.43 4.37 0.00 2.98 0.00 -1.57 -11.04 -6.02 0.00 0.00 4.34 3.86 5.25 0.00 0.00 2.72 3.08 0.00 0.00 5.36 -11.37 -32.76 -18.03
Bolivia Income VAT/salestax Other Contributions taxes to social security tax-0.00 -1.75 -0.20 0.00 5.72 Education 2.68 Health Cash Other transfers social spending 0.34 1.72 0.01 Pensions Colombia tax Income -0.02 VAT/salestax Other Contributions to social taxes security Health Cash Other transfers social spending -1.70 -0.13 0.00 4.07 Education 3.59 0.01 1.64 1.62 0.05 Pensions 0.34 -0.04 -2.82 -0.37 0.00 3.83 3.71 0.14 -0.44 -4.05 -0.90 0.00 3.33 3.81 0.18 1.62 0.82 2.42 -2.01 -6.42 -1.94 0.00 0.00 3.16 4.53 0.34 0.30 1.70 2.25 1.40 13.58 4.45 -24.51 -15.54 -6.07 -0.01 -2.65 -0.43 0.00 6.39 2.89 0.92 1.99 0.42 -0.02 -4.42 -0.53 0.00 6.36 3.00 0.93 2.15 0.69 -0.06 -7.65 -0.81 0.00 0.00 6.27 6.35 3.06 1.251.11 2.99 2.38 1.92 11.75 3.00 -1.11 -31.50 -4.06
Honduras tax Income -0.32 VAT/salestax Other Contributions Education Health Cash Other Pensions Mexico tax Income -0.33 VAT/salestax Other Contributions Education Health Cash Other Pensions transfers social spending taxes to social security -0.46 -0.18 -0.03 4.49 1.87 0.47 1.07 0.24 0.14 0.40 0.60 -0.44 -1.43 -0.41 -0.14 4.80 2.26 -1.26 -2.70 -0.67 -0.33 4.52 2.67 0.25 0.63 0.89 -1.70 -5.55 -1.07 -0.86 5.47 2.85 0.25 0.75 1.46 -21.72 -18.55 -2.89 -4.69 4.52 2.80 0.17 0.95 2.22 transfers social spending to social taxes security -1.85 -0.54 0.00 4.92 1.89 0.79 1.86 0.00 -0.85 -4.26 -1.29 0.00 5.82 2.57 0.44 1.70 0.00 -1.56 -6.99 -2.24 0.00 6.31 3.05 0.26 1.74 0.00 -3.13 -11.86 -3.85 0.00 7.81 3.09 0.12 0.12 2.18 0.00 2.74 0.00 -11.84 -29.89 -10.45 0.00 10.80 3.03
Karla APPENDIX
Breceda TABLE
/ Jamele
Rigolini
/ Jaime
Saavedra
745
2 (continued)
Nicaragua VAT/salestax Other Contributions taxes to social
tax Income -0.22 -4.15 -0.53 security 0.00 4.27 Education Health 4.04
-0.49 -6.24 -0.90 0.00 4.49 3.52 2.10 0.00
-0.96 -9.09 -1.45 0.00 4.89 3.72 0.00 2.54 0.00
-1.92 -12.49 -2.31 0.00 5.48 5.16 3.18 0.00 2.07 2.00 0.00
-11.21 -29.24 -7.22 0.00 2.07 0.00 0.00
Cash Other
transfers social spending
0.00 0.00 2.00 0.00
Pensions Peru
tax Income -0.01 VAT/salestax Other Contributions Education Cash Other Pensions United Kingdom transfers social spending taxes to social security -2.64 -0.40 0.00 3.23 Health 1.81 0.00 0.00 0.69 0.00
-0.04 -4.57 -0.90 0.00 3.24 2.23 0.55 0.00
-0.11 -6.98 -1.48 0.00 3.02 3.16 0.00 0.39 0.00
-0.31 -10.25 -2.77 0.00 2.69 3.47 0.00 0.24 0.00
-22.73 -25.58 -9.76 0.00 2.12 3.87 0.00 0.09 0.00
tax Income -1.81 -4.05 taxes to social security -1.54 -0.91 5.15 Health 7.37 6.35 6.69 0.53 5.20 Pensions
-3.45 -4.90 -1.73 -1.70 4.01 7.10 0.41 5.74
-6.55 -6.08 -2.06 -3.03 3.78 6.01 3.89 0.28 4.09 1.61
-11.34 -7.26 -2.48 -4.74 3.09 5.24 2.13 0.25 2.72
-28.17 -10.27 -3.69 -7.86 2.26 4.70 1.20 0.31
VAT/salestax Other Contributions Education Cash Other transfers social spending
United
States tax Income -0.82 -2.69 -1.38 -1.21 -2.71 5.46 -5.70 -1.71 -1.92 -4.55 5.14 4.73 0.52 1.60 4.33 3.80 -11.37 -2.01 -2.88 -6.93 5.54 3.99 0.32 1.09 3.22 -36.05 -2.47 -4.13 -10.60 5.26 3.55 0.18 0.72 3.78 -0.80 taxes to social security -0.68 -1.04 3.11 4.44 4.59 Health 0.82 0.93 1.73 2.00 4.02
VAT/salestax Other Contributions Education Cash Other Pensions transfers social spending
746
Latin
America
and
the
Social
Contract
Notes
The views in this article are those of expressed and do not necessarily reflect those or of the World its Board of Directors, Bank, the authors the countries Jamele org. 1 In used line with the in Rousseau's term original Social Contract, we first use author: they represent. Contact Email: Rigolini, jrigolini@worldbank. 5 Hanousek stance, using Republics, evidence taxes and Palda for in (2004), a survey of the Czech and Slovak and Poland, find strong Hungary, that citizens will seek to avoid paying believe government them. they are getting services for the
if they do not
acceptable quality taxes levied upon
to refer to the broad political the expression within social agreement society on taxation, and welfare. spending, 2 For instance, tive component al. (2006) had 3 Because more United children than households to identify the redistribu of pension systems Lindert et to rely on simulation exercises. in Latin America there are in the poorest in the United of quintile States or the
6 Figure 10 shows yearly contributions and payments and there by income quintiles, fore does not consider the fact that some of the contributions future and provisions 7 = If y to provisions for the correspond stem that some pensions from paid from the past. is spending as given
education Kingdom, public expendi ture per child would be slightly lower. 4 We were unable to include all cash
in income q quintile in Appendix Table 2, is indicated by the slope p of progressiveness the regression line y = a+ /3q. Higher values of P represent more progressive spending. The absolute then been adjusted values of p have (q 1,...5), with a common 11 and Figures pared multiplier 12. What to fit the scales needs to be com in
in Latin America: for in programs en Action in such as Familias programs and the Red de Protection Social in Ni Colombia transfer stance, because the caragua have not been considered household did not surveys in these countries of these programs. identify the beneficiaries However, smaller Mexico since these programs are much in magnitude in than Oportunidades in Brazil, it is likely and Bolsa Escola not change that their inclusion would the fact that cash Kingdom America. transfers are to the poor still much higher in the United than in Latin
in the figures is therefore the relation the various ship between country-specific ps, values rather than the absolute of p. 8 For instance, adjust most sources used in the
CEPAL (2006a) studyof disaggregated social

spending Account leading spending people's taxes and transfers to National income, data, but not households' to bizarre such as social findings amount of being a disproportionate income.
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Latin America and The Social Contract Patterns of Social Spending and Taxation

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Latin America and The Social Contract Patterns of Social Spending and Taxation

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Latin America and the Social Contract: Patterns of Social Spending and Taxation Author(s): Karla Breceda, Jamele

Latin America and Contract: the Social Patterns of Social

in Latin America, too, is income inequality constrains

higher. also find a relationship

and taxation in Latin America

This article defines

1990 and 2004

the 1970s with 1990s

of social spending and taxation

Lindert et al. (2006) for social spending; Gomez Sabaini

(2005) for taxation.

social protection (Bolivia, Ecuador, 2006). (see also Hernandez

and Honduras) to compute social have comple

and taxation by income quintile

States, circa 1997-2004

_ >r: _65l-1 I-1

III quintile 1 and 2.

See Appendix Tables

Mexico .06 H< S a* ^ .04 .02 0

.^..^..^-..-= ? O ? ?-c "r?.??.?-?-.-?-1 ^i-1-1-1-r1

See Appendix Tables 1 and 2.

spending in both countries than it is in Latin America. Direct transfers

that the higher

and informal activity. Because pays on average 82 percent of

of the richest and poorest

States, circa 1997-2004

See Appendix Tables 1 and 2.

7 Net transfers as a percent

of GDP per capita

-"^ l_J_I__1__I_lJ Income SOURCE: quintile

See Appendix Tables 1 and 2.

Mexico SOURCE: OECD

Colombia Argentina (2004). and Tromben

(2002) and Martner

spending: social spending

~ u " ^^^^ q ^^H ^ a^H

Taxation/contributions: Incometax D VAT/salestax

See Appendix Tables 1 and 2.

the redistributive nature of pay-as-you-go

systems, since redistribution occurs but also over time.

The social contract in Latin America: Future directions

a goal across the region, action recent increased socioeconomic instabil

for the incidence analysis

the progressiveness good. In

fails to capture some important

will produce better or fundamentally different policy advice"

are likely to be sensitive to parameter specifications, so that it would not be possible

here (see, e.g., Selden andWasylenko

consistently aim is simpler:

1999;Wolff, Zacharias, and Caner 2004; Harris

Although studies look at disaggregated social spending in Latin America

that simultaneously estimated disaggregated spending in education, health, and direct

"spending issue that we

countries. one fail to address and does affect

Gasto de Hogares los

Consumer Finances Federal (2004) Survey Reserve's of

Transfers Country Year Taxes Survey used

APPENDIX TABLE 1 Data sources

744 APPENDIX percent TABLE 2 Social of GDP per capita and

Nicaragua VAT/salestax Other Contributions taxes to social

-0.49 -6.24 -0.90 0.00 4.49 3.52 2.10 0.00

-0.96 -9.09 -1.45 0.00 4.89 3.72 0.00 2.54 0.00

-11.21 -29.24 -7.22 0.00 2.07 0.00 0.00

-"^ l_J_I1I_lJ Income SOURCE: quintile