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A Story of Two Tails? Secular trends in income shares in Latin America

Monday December 2, 2019, at 13:30
Room 24.021 (Ground floor). Mercè Rodoreda 24 building
Research seminar

Research seminar available in video:

Two things are certain about income inequality in Latin America. First, that inequality reached very high levels in the closing decades of the 20th century, and, second, that it experienced a broadly shared narrowing trend in the first decade of this century. However, our knowledge of the trajectories in income inequality during most of the last century remains limited largely owing to scarcity of comparable and consistently defined times series in a sufficient number of countries. Crucial questions still await satisfactory answers. Has inequality always been high reflecting institutional features of these societies that supported the reproduction of inequalities?, or, Have structural and political transformations and shifts in development strategies been key forces shaping the inequality outcome and generating country diversity?

The path-breaking work by Atkinson and Piketty on income concentration estimated from fiscal records makes it possible to track top incomes during periods without official household budget surveys and to capture better the share received by the rich where underestimation in such surveys is well known. However, this ongoing empirical undertaking has so far paid little attention to those at the bottom of the distribution, since the poor do not file tax returns. This is unfortunate, as the income take of the lower groups is of paramount importance for assessing the distributional impact of the development and growth process. Indeed, the United Nations’ 2030 Agenda has, as a key inequality target, that the income of the bottom 40 % of the population should rise at a rate higher than the national average. Recent developments in the tails and at the middle 50% of the income distribution have been the centre of attention of Palma. The focus on the share of the richest 10% rather than the top 1% is justified since this decile usually shows a contrasting behaviour when compared to the ninth decile; a contrast that is especially acute in Latin America.

In this seminar, I will present and discuss new estimates of income shares for the top 10%, middle 50% and the bottom 40% of the labour force for Argentina, Brazil, Chile, Colombia, Mexico and Venezuela during the period 1900-2011. My work adopts an innovative estimating approach that largely relies on wage data, but that also makes allowances for non-labour income. A key aspect of the estimation is the reallocation of sections of the labour force – and their associated income - in order to move from four occupational groups defined according to skills to a distributional 10/50/40 breakdown. Because of data and methodology limitations, the calculated income shares are necessarily approximations of their true values, but they can inform about secular trends in both tails and at the middle of the distribution. They also have the advantage of offering a consistent, multi-country view spanning decades with no official household surveys, and where income tax records, if available at all, are of questionable use owing to pervasive tax evasion and avoidance.

Pablo Astorga is an economist with considerable academic and market-oriented experience in the analysis of developing countries. He was senior economist for Oxford Economics from 2001 to 2009, having under his responsibility the assessment and forecast of the Latin American economies and the management of various consultancy projects. Prior to that he was a research fellow at St Antony's College, Oxford. His research has focused on the study of economic development in Latin America over the long run, including income inequality, economic growth and productivity. The outcome of this research has been published in Journal of Development Economics and The Economic History Review among others.