How much redistribution does Uruguay accomplish through social spending and taxes? How progressive are revenue collection and social spending? What could be done to further increase redistribution and improve redistributional effectiveness? A standard fiscal incidence analysis shows that Uruguay achieves a nontrivial reduction in inequality and poverty when all taxes and transfers are combined. Direct taxes are progressive and indirect taxes are practically neutral. Social spending on direct transfers, contributory pensions, education, and health is quite progressive in absolute terms except for tertiary education, which is almost neutral in relative terms. Specific suggestions for improving the effectiveness are suggested.

How much redistribution does Uruguay accomplish through social spending and taxes? How progressive are revenue collection and social spending? A standard fiscal incidence analysis shows that Uruguay achieves a nontrivial reduction in inequality and poverty when all taxes and transfers are combined. In comparison with other five countries in Latin America, it ranks first (poverty reduction) and second (inequality reduction), and first in terms of poverty reduction effectiveness and third in terms of overall (including transfers in kind) inequality reduction effectiveness. Direct taxes are progressive and indirect taxes are regressive. Social spending on direct transfers, contributory pensions, education and health is quite progressive in absolute terms except for tertiary education, which is almost neutral in relative terms.

The aim of this study is to analyze the effect of fiscal policy by race, disaggregating to consider Uruguayans with primarily European, African and indigenous ancestry. We perform an incidence analysis, an estimation of the effect of fiscal policy on the poverty exit rate and an assessment of the impact on the average ethno-racial gaps. The findings support the idea that fiscal policy reduces (but does not eliminate) ethnic gaps. This result is led by health care and educational transfers, and to a lesser degree by direct transfers. We do not consider quality issues with public services, which may affect the estimated narrowing of gaps. Finally, we find that Afro-descendants and indigenous individuals do not capture the full potential of education transfers because of their high drop-out rate.

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RESUMENEn Uruguay, el sistema impositivo y el gasto social reducen la desigualdad y la pobreza . En este estudio analizamos el efecto de la política fiscal por raza teniendo en cuenta la clasificación entre blancos, afros e indígenas. La cuestión principal de nuestro trabajo es analizar si esta reducción en la desigualdad y de la pobreza benefician a un grupo racial sobre los demás o afecta a todos los grupos por igual.Los tres grupos raciales tienen la misma probabilidad se sacados de la situación de extrema pobreza por el sistema de transferencias directas. Sin embargo la probabilidad de dejar la pobreza moderada es menor para los indígenas que para los otros grupos. Por lo tanto, el sistema de transferencias directas reduce la pobreza de los tres grupos pero no logra ponerlos en pie de igualdad.Cuando analizamos el ingreso promedio las conclusiones cualitativas van en la misma dirección. Las brechas raciales se reducen levemente -liderado por las transferencias en especie-y no desaparecen.Palabras clave: desigualdad, pobreza, raza, política fiscal, transferencias directas. JEL: I38, I32, D63, H22, H24ABSTRACT In Uruguay the tax structure and social spending reduce inequality and poverty for the whole society . In this study we analyze the effect of fiscal policy by race considering whites, afros and indigenous. The main question of our paper is whether the reduction of inequality and poverty benefit a racial group over the others or affect racial ethnic groups equally.The three racial groups are equally likely to be taken off extreme poverty by the direct transfer system. However, the hazard of leaving moderate poverty is lower for indigenous than for the other two groups. So the direct transfer system reduces poverty of the three groups but does not achieve to put racial groups on an equal footing.When analyzing the average income, the qualitative conclusions are on the same direction. Racial gap narrows slightly -led by inkind transfers-and does not disappear.