The recent decline in income inequality in Brazil and its consequences on poverty Ricardo Paes de Barros (IPEA) Bogota, October 2007

1. Magnitude

In 2006, inequality continues to decline at the same rate

Four reasons why this decline must be celebrated

From the average to the lowest level

Few countries have reduced inequality faster than Brazil

Poverty have declined three times faster than required by the first millennium development goal

Brazil did in four years what took 15 years for the Latin American region to do

At least one half of the decline in poverty was due to the reduction in inequality

Over the past five years the income of the poor have been growing like the per capita GDP in China

From 2001 to 2006 the per capita income of the bottom 10% increased at a Chinese rate (9% per year). It was more than three times the national average (2,5%)

The need for continuity

Immediate Determinants

Improvements in the labor marketand the increase in government transfers equally explain the decline in poverty and inequality in Brazil Improvements in the labor market and the increase in government transfers equally explain the decline in poverty and inequality in Brazil

The Life Cycle Bias of Government Transfers in Brazil

We have been giving priority to the elderly, while reducing poverty

As a consequence, the level of poverty among children is almost tenfold higher than among the elderly

Educational Progress

Labor Market Imperfections: Discrimination and Segmentation

Let us limit our celebration, after all the decline in inequality has not been accompanied by a major concomitant increase in labor productivity

The exit path for the very poor remains limited. Brazilian social policy does not seem very effective in giving short-run opportunities for the very poor

The very limited effectiveness of the Minimum Wage Policy for reducing poverty and inequality