Latin American countries experienced a significant reduction in income inequality at the turn of the twenty-first century. From the early 2000s to around 2012, the average Gini coefficient fell from 0.51 to 0.47. The period of falling inequality coincided with leftist presidential candidates achieving electoral victories across the region: by 2009, 11 of the 17 countries had a leftist president—the so-called Pink Tide. Using a difference-in-differences design, a range of econometric models, inequality measurements, and samples, this study finds evidence that leftist governments lowered income inequality faster than non-leftist regimes, increasing the income share captured by the first 7 deciles at the expense of the top 10 percent. The analysis suggests that this reduction was achieved by increasing social pensions, minimum wages, and tax revenue.

Unconditional allowances and other social payments for people entitled to social support 42,202,

The Kakwani index of progressivity is commonly used to establish whetherthe effect of a specific tax or transfer is equalizing. In the presence ofreranking or Lambert’s conundrum, however, a progressive tax could beunequalizing. While it is mathematically possible for counter-intuitiveresults to occur, how common are they in actual fiscal systems? Using anovel dataset that includes fiscal-incidence results for 39 countries, we findthat the likelihood of the Kakwani index to be progressive (regressive),while the tax or transfer is unequalizing (equalizing), is minimal, except inthe case of indirect taxes: in roughly 25 per cent of our sample, regressiveindirect taxes are equalizing (sign-inconsistent cases). Additionally, thelikelihood that the Kakwani index ranks the magnitude of the impact of atax or transfer wrongly also exists but it too is small. Finally, usingregression analysis, we find that increasing the size or progressivity of aprogressive tax or transfer is equalizing and statistically robust forsign-consistent cases. For sign-inconsistent cases, the coefficient for theKakwani index is not statistically significant. In sum, although theKakwani index could yield interpretations that are inaccurate in actualfiscal systems, the risk seems small, except for indirect taxes.

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