the mit press poverty inequality and policy in latin america feb 2009

Po v e r t y, I n e q u a l i t y, a n d Policy in Latin America edited by Stephan Klasen and Felicitas Nowak-Lehmann Seminar Series Poverty, Inequality, and Policy in Latin America CESifo Seminar Series edited by Hans-Werner Sinn Structural Unemployment in Western Europe: Reasons and Remedies Martin Werding, editor Institutions, Development, and Economic Growth Theo S. Eicher and Cecilia Garcı ´ a-Pen ˜ alosa, editors Competitive Failures in Insurance Markets: Theory and Policy Implications Pierre-Andre ´ Chiappori and Christian Gollier, editors Japan’s Great Stagnation: Financial and Monetary Policy Lessons for Ad- vanced Economies Michael M. Hutchison and Frank Westermann, editors Tax Policy and Labor Market Performance Jonas Agell and Peter Birch Sørensen, editors Privatization Experiences in the European Union Marko Ko ¨ thenbu ¨ rger, Hans-Werner Sinn, and John Whalley, editors Recent Developments in Antitrust: Theory and Evidence Jay Pil Choi, editor Schools and the Equal Opportunity Problem Ludger Woessmann and Paul E. Peterson, editors Economics and Psychology: A Promising New Field Bruno S. Frey and Alois Stutzer, editors Institutions and Norms in Economic Development Mark Gradstein and Kai A. Konrad, editors Pension Strategies in Europe and the United States Robert Fenge, Georges de Me ´ nil, and Pierre Pestieau, editors Foreign Direct Investment and the Multinational Enterprise Steven Brakman and Harry Garretsen, editors Sustainability of Public Debt Reinhard Neck and Jan-Egbert Sturm, editors The Design of Climate Policy Roger Guesnerie and Henry Tulkens, editors Poverty, Inequality, and Policy in Latin America Stephan Klasen and Felicitas Nowak-Lehmann, editors See http://mitpress.mit.edu for a complete list of titles in this series. Poverty, Inequality, and Policy in Latin America edited by Stephan Klasen and Felicitas Nowak-Lehmann The MIT Press Cambridge, Massachusetts London, England ( 2009 Massachusetts Institute of Technology All rights reserved. No part of this book may be reproduced in any form by any elec tronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher. For information about special quantity discounts, please e mail special sales@mitpress .mit.edu This book was set in Palatino on 3B2 by Asco Typesetters, Hong Kong. Printed and bound in the United States of America. Library of Congress Cataloging in Publication Data Poverty, inequality, and policy in Latin America / edited by Stephan Klasen and Felicitas Nowak Lehmann. p. cm. (CESifo seminar series) Includes bibliographical references and index. Papers from a conference held at the Ibero America Institute for Economic Research in Go ¨ ttingen, Germany, in July 2005 and cosponsored by the CESifo research network. ISBN 978 0 262 11324 3 (hardcover : alk. paper) 1. Poverty Latin America Congresses. 2. Equality Latin America Congresses. 3. Latin America Economic policy Congresses. 4. Latin America Social conditions Congresses. I. Klasen, Stephan. II. Nowak Lehmann D., Felicitas. III. Universita ¨ tGo ¨ ttingen. Ibero Amerika Institut fu ¨ r Wirtschaftsforschung. IV. CESifo. HC130.P6P715 2009 339.4 0 6098 dc22 2008029405 10987654321 Contents Series Foreword vii Introduction 1 Stephan Klasen and Felicitas Nowak-Lehmann I The Transmission of Poverty and Inequality in Latin America 17 1 The Colonial Origins of Inequality: Exploring the Causes and Consequences of Land Distribution 19 Ewout Frankema 2 Earnings Inequality and Educational Mobility in Brazil over Two Decades 47 Denis Cogneau and Je ´ re ´ mie Gignoux 3 Race Discrimination or Inequality of Opportunities: The Brazilian Case 85 Phillippe G. Leite II Spatial Dimensions of Poverty and Inequality in Latin America 127 4 Consumption Growth and Spatial Poverty Traps: An Analysis of the Effect of Social Services and Community Infrastructures on Living Standards in Rural Peru 129 Philippe De Vreyer, Javier Herrera, and Sandrine Mesple ´ -Somps 5 Spatial Externalities between Brazilian Municipios and Their Neighbors 157 Philippe De Vreyer and Gilles Spielvogel III Economic Policy, Poverty, and Inequality in Latin America 189 6 Macroeconomic and Distributional Effects of Devaluation in a Dollarized Economy: A CGE Analysis for Bolivia 191 Rainer Schweickert, Rainer Thiele, and Manfred Wiebelt 7 Medium-Term Impacts of the Oportunidades Conditional Cash-Transfer Program on Rural Youth in Mexico 219 Jere R. Behrman, Susan W. Parker, and Petra E. Todd 8 The Impact of Brazil’s Tax-Benefit System on Inequality and Poverty 271 Herwig Immervoll, Horacio Levy, Jose ´ Ricardo Nogueira, Cathal O’Donoghue and Rozane Bezerra de Siqueira Appendix 303 Contributors List 315 Index 317 vi Contents Series Foreword This book is part of the CESifo Seminar Series. The series aims to cover topical policy issues in economics from a largely European perspective. The books in this series are the products of the papers and intensive debates that took place during the seminars hosted by CESifo, an international research network of renowned economists organized jointly by the Center for Economic Studies at Ludwig- Maximilians-Universita ¨ t, Munich, and the Ifo Institute for Economic Research. All publications in this series have been carefully selected and refereed by members of the CESifo research network. Poverty, Inequality, and Policy in Latin America: An Introduction Stephan Klasen and Felicitas Nowak-Lehmann The causes and consequences of high inequality in incomes, assets, and many aspects of well-being in Latin America have recently re-emerged as a central research and policy issue. While in previ ous decades, con- cern about high inequality in Latin America was, following Kuznets’ seminal work in the 1950s, largely focused on the impact of the devel- opment process on inequality, the new emerging literature is consid- ering the reverse causality—that is, the impact of inequality on the development process. Prominent examples of this renewed emphasis include a number of reports produced recently by the World Bank, such as the recent World Development Reports on Poverty (World Bank 2000) and Equity (World Bank 2005), as well as reports focusing on Latin America, including the 2004 report Inequality in Latin America: Breaking with History (World Bank 2003) and the 2006 report Poverty Reduction and Growth: Virtuous and Vicious Circles (World Bank 2006). Similarly, academic research has taken on this issue with renewed vig- or, as shown by works of Eicher and Turnovsky (2003), Deininger and Squire (1998), and Forbes (2000), among many others. There are a number of reasons leading to this re-emergence of in- equality as a central research and policy issue in Latin America, as well as the new emphasis on its development impacts. First, inequality was and is extremely high in Latin America. As shown in table I.1, Latin America continues to have the dubious distinction of having the highest income inequality in the world, as measured by the Gini coeffi- cient. Using other measures, or other dimensions, of inequality (e.g., assets) would yield similar results. More disconcerting is the persis- tence of inequality in Latin America across time. In contrast to the hope held out by the Kuznets hypothesis that inequality will eventu- ally decline with development, inequality has remained extremely high through the past 30 years and changed little even during episodes [...]... of policies on poverty and inequality, as well as significant improvements in studying the spatial dimension of poverty and inequality, including the question of spatial poverty traps.1 Clearly, the high and persistent inequality in Latin America is one of the central, if not the central, economic policy challenges for Latin American policymakers, and we have new tools and data at hand to study this... acquiring large estates In other words, land inequality formed a core ingredient of the colonial institutional matrix in Latin America (Williamson 1992, Fernandez-Armesto 2003) 20 Ewout Frankema With the Latin American experience in mind, this chapter explores two questions: what explains the cross-country variation in land inequality at the end of the colonial age, and how does initial land inequality. .. understanding inequality and poverty dynamics as well as their policy drivers First, there is still an incomplete understanding of the historical factors that generated these high levels of inequality in Latin America The work by Engermann and Sokoloff (2002) has generated many useful insights in this regard, particularly emphasizing the role of land inequality and of colonial policies in generating high... colonial institutions contributed to high land inequality in Latin America To study the impact of land inequality on income inequality and development, Frankema controls for the level of economic development and separates the impact of land inequality in a direct effect (the share of rural inequality in total inequality) from an indirect effect related to path-dependent effects Frankema finds that west and. .. deters investment; to social conflict leading to inefficiencies, economic and political uncertainties, and growth collapses (e.g., Alesina and Rodrik 1994; Rodrik 1998; Deininger and Squire 1998; World Bank 2003, 2006) Fifth, there is growing debate and awareness about the well-being costs of high inequality in Latin America Given inequality aversion, for which there is convincing evidence from Latin America. .. established, the longer-term impacts on poverty and inequality in a country remain an open question As these programs are being scaled up and extended, it is interesting to see whether they are beginning to seriously affect poverty and inequality levels and have lasting long-term impacts on the intergenerational transmission of economic status Similarly, the scope and limits of using the tax and expenditure... to the open questions raised above, and close by identifying open research and policy questions The contributions are grouped into three parts Part I analyzes the emergence and transmission of poverty and inequality in Latin America It centers around, firstly, the relationship between land inequality, institutions, and income inequality and, secondly, the relationship between racial discrimination and/ or... In particular, the contributions greatly add to our understanding of the evolution and nature of inequality in Latin America, of its spatial and temporal trends, and of the impact of particularly pertinent policy instruments in tackling poverty and inequality While all of the studies focus on one country, the issues analyzed are typically paradigmatic for many Latin American countries and thus provide... landed estates and traded salvation and The Colonial Origins of Inequality 23 sacraments in return for (generous) gifts from its members The concentration of land in the hands of the Catholic Church may, indeed, have had a significant positive impact on land inequality (Van Oss 2003, Bakewell 2004) 1.2.2 The Relation between Initial Land Inequality and Current Income Inequality Land is the most important... inequality figures Land inequality is widely regarded as an important determinant of persistent asset inequality and institutional rigidity (Engerman and Sokoloff 1997; Galor, Moav, and Vollrath 2003; North, Summerhill, and Weingast 2000) In no other region of the world was the evolution of land inequality so directly intertwined with colonial settlement as in Latin America For the Spanish Crown, land was a . Nowak-Lehmann I The Transmission of Poverty and Inequality in Latin America 17 1 The Colonial Origins of Inequality: Exploring the Causes and Consequences of Land Distribution 19 Ewout Frankema 2 Earnings Inequality. that west and central Africa and Latin America show very different results: in Latin America land inequality is largely driving income inequality, whereas income in- equality in west and central. 2006). Fifth, there is growing debate and awareness about the well-being costs of high inequality in Latin America. Given inequality aversion, for which there is convincing evidence from Latin America