1. Is the 2000s L.A. fall in income inequality permanent or temporary? Giovanni Andrea Cornia University of Florence ------------------------------------------------------------- Festschrift in honour of Professor Rolph van der Hoeven Institute of Social Studies, Den Hag 08-10-2015

2. 1.Inequality trends 1990-2010: large improvements

3. Washington Consensus and ‘Lost Decade’ Augmented Washington Consensus New Policy Approach Trend in av. regional Gini of Distribution of Household Income/c Gini decline 2002-2010: Latin America = - 5.5 South America = - 7.0 Central America = - 3.9

4. (i) Political changes (ii) Policy changes (iii) Changes in external conditions Sources of inequality decline 2002-2010

5. (i) trend in ideological orientation LA gov: the ‘2000s left turn’

6. (i) average Gini drop/year 2002-2009 by political regime Gini points change average yearly Radical left -4.36 -0.51 Social Democratic left -3.64 -0.92 Centrist -3.11 -0.56 Centre-right & right -0.70 -0.07

7. (ii) Policies that helped reducing Gini Rise in 2ary educat. of low-middle class children  - sw/uw labor market policies –Rise in minimum wages (less in average wage) –Collective bargaining (Southern Cone) –Labor standards + formalization of informal jobs Tax policies –Rising tax/GDP + more progressive taxation Public expenditure Social transfers (social pensions, CCT, Prudent macro policy (countercyclical fiscal/monetary policy, low deficits, low inflation, reduced ext. debt)

8. (ii)

9. (ii) Index of real minimum wages (2000=100), selected countries Years of left regimes 20022004200620082010 Venezuela (1999) 94.5 92.7113.9107.2 93.8 Brazil (2002)114.3121.4145.3160.8182.0 Argentina (2003) 81.4129.8193.2253.3321.3 Uruguay (2005)88.777.5153.2176.9196.8 Costa Rica (2006)99.597.699.5 105.8 Nicaragua (2007)105.9113.5128.5141.6174.6 Ecuador (2007)112.5122.2130.0146.7161.5 Guatemala (2008)108.6117.6119.6111.9122.0 Mexico (--)101.299.199.096.295.6

10. Crisis of 1990-91 Debt Crisis The Augmented Washington Consensus The New Tax Consensus The Washington Consensus (ii) Trend in Average Tax/GDP Ratio, 1973-2009, L.America

11. - Large increase in well targeted CCT & social assistance (0.5-1.0% GDP)- - Pure transfers + non-contrib pensions(Arg, Brazil, Chile, Bolivia, Uruguay) (ii)

12. (iii) rise in tax revenue due to gains in terms of trade ? All countries Commodity exporters (non tax revenue)

13. (iii)Rising and more equalizing remittances (e.g. El S.) Azevedo and Cabrera 2014 3 points 6 points

14. 2. Inequality trend since the 2008 crisis: a reversal of prior gains?

15. Is the decline in Gini cyclical or structural ?..... Gini declines also during the crisis years of 2008-2012 Cornia (2014) on CEDLAS & CEPAL data for 11 countries with complete data for 2008-12, i.e.: Argentina, Bolivia, Brazil, Colombia, CostaRica, Ecuador, El Salvador, Mexico, Panama, Peru and Uruguay. The dotted line includes Uruguay (which recorded a higher-than-average Gini drop over 2008-12. The solid lines excludes it.

16. ….but stagnant Gini btw 2012 & 2013 (SEDLAC data) Falling Gini Rising Gini –Argentina -0.1 - Bolivia + 1.4 –Chile -0.4 - Brazil + 0.1 –Colombia -0.1 - C. Rica + 0.6 –Honduras -3.9 - Ecuador + 0.9 –Panama -0.3 - El Salv. +1.7 –Peru -0.4 - Dom Rep. +1.4 – - Uruguay + 0.6 –Average - 0.86 - Average + 0.95 –Paraguay 0.0

17. rising % of those feeling that income distribution is fair or very fair, 2011-2013

18. (i) Political changes (ii) Policy changes (iii) Changes in external conditions Sources of inequality changes 2009/10- 2013

19. (i)Political trends: no end to‘left turn’ – but... will it start with the next round of elections ?

20. (i) sense of ‘political stress’ due to GDP slowdown (& some errors) Economic recession & inflation –Falling consensus for PT in Brazil (see later) –Recession, inflation and uncertainty in Argentina –Difficult situation in Venezuela –But..Uruguay, Bolivia, Ecuador, Peru, Chile, Panama, etc doing ok In 9 commodity exporters falling world prices/volumes, make it more difficult to fund expansionary fiscal social transfers Protests led by ‘middle class’ that was taxed to redistribute to poor but received fewer services, lost manufacturing jobs due to reprimarization External factors less important in other 9 – where tot did not change much

21. (i) Falling government approval rate (top) but still rising, if unequally distributed, perception of country progress (bottom)

22. GDP growth in 2014-15 = 1.3 and 0.9% Av. pop growth = 1.1% (ii) Global crisis & context of policy changes: 2009 crisis, 2010 rebound, 2011-13 slowdown. In 2014-5  zero growth/c. Gini affected

23. (ii) Policy changes No evidence of abandonment of past macro model GDP growth sustained 2010-2013 by domestic consumption. In 2014-15 mean LA GDP growth 1.3 and 0.9 (with pop growth =1.1) Labour market policies further strengthened (Table) revenue/GDP ratios are stable, but in few countries loss of non-tax revenue (oil/mining royalties) Tax policy more focused on distributive issues (Gomez Sabaini & Moran 2014) Public exp/GDP not falling but ‘fiscal space’ dropping in some countries Macro policies under pressure (CPI from 5 to 9; primary surplus: from +3 to - 0.1)

24. Trend in commodity prices & tot since 2009 (fall, rebound, further fall)  rising Gini?

25. Terms of trade and inequality – 4 country groups nr r no relation rr nr r r

26. Export volumes and Gini – country groups nr r r r r

27. 1980-20131980-20022003-20082009-20112012-2013 MINERAL EXPORTERS (6 COUNTRIES) Terms of Trade -.0285***.0048-.0319***-0.0383**.0302 Export Volume-.0198***.0428***-.0341***-.0293.0160* AGRICULTURAL EXPORTERS (3 COUNTRIES) Terms of Trade -.0057.0055-.0936**-.0045.0872 Export Volume-.0133**.0531***-.0498***-.0417.0980* OTHER COUNTRIES (9 COUNTRIES) Terms of Trade -0.0222**-.0257***.07870.27620.1196 Export Volume-.0019**.0235***-.00230168-.0037 ALL (18 COUNTRIES) Terms of Trade -.0234***-.0022-.0434***-.0361*.0654 Export Volume-.0035***.0353***-.0043***-.0019-.0001 * ; ** and ***denote significance at the 10%, 5% and 1% levels, respectively. Mineral exporters: Bolivia, Chile, Colombia, Ecuador, Peru, Venezuela. Agricultural exporters: Argentina, Brazil, Mexico. Others countries: Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Paraguay, Uruguay. RELATIONSHIP BETWEEN GINI, TOT AND EXPORT VOLUME

28. Overall conclusions Post SAP L.A. economies affected by strong dependency on global markets As in EU, lasting global recessions inevitably impact on growth, BoP, revenue, and posibly Gini Post 2008, Gini continued to fall till 2002 thanks to strong initial conditions & policy committment In 2013, first clear signs that Gini stopped falling (50% falls and 50% rises) Tot and X volumes (uncorrelated with Gini till 2002) might affect future Gini as the ‘redistributive institutions’ put in place in the 2000s may be more difficult to finance. This is key in 9 countries Despite global problems, no signs yet that the ‘left turn’ in politics is over Social-democratic policies not abandoned, even strengthened but entitlements possibly part eroded With deteriorating growth in 2014-5, Gini might be inevitably affected cyclically – but not structurally A structural change in Gini trend will depend on new wave of elections, starting with Brazil, Argentina and Venezuela. Conditions not so exasperated in most other countries A deepening of the 2000s reforms (in the field of taxation, education and industrial policy) could help combating the effects of the world crisis on income inequality