Abstract
Latin America’s largest federations have significantly reduced their levels of income inequality in recent years, perhaps reflecting a structural change toward egalitarianism. However, we argue that the political geography of federalism in Argentina, Brazil, and Mexico strongly shapes preferences against centralized redistribution likely to promote equity in the long term. While federalism does not necessary lead to lower redistribution in theory, the geographic spread of income and malapportioned political institutions limit egalitarianism in these nations. These dynamics help explain why fiscal structures are distinct in Latin American federations as compared to federations in high-income countries. First, we show that the territorial structure of inequality and malapportionment are associated with lower redistributive effort in the global context and that the Latin American federations have extreme values for both variables. Second, using a new data set of income distributions within and across Argentina, Brazil, and Mexico over time, we demonstrate that the conditions that favor fiscal transfers from the national to subnational governments are consistently strong, but conditions are rarely favorable for centralized policies to equilibrate national income. Unequal income patterns are reinforced by legislative malapportionment, which encourages interregional transfers to regions and limits the political voice of more populated and unequal regions that would benefit from centralized redistribution.
Highlights
Latin America’s largest federations have experienced a decade of economic growth, coupled with an egalitarian turn in politics, and a notable reduction in national income inequality (Lustig, López-Calva, and Ortiz-Juarez 2013)
In this article we focus on a distinct set of institutional constraints on the scope of redistributive efforts in Latin America’s federations: the role of economic geography in shaping the relative weight of territories versus citizens in the organization of fiscal structures
Recent policy interventions in all three nations have not fundamentally altered their income distributions, and slowing growth in the region may lead to retrenchment that scales back these gains
Summary
Latin America has the highest level of inequality of any region in the world, despite relatively high levels of income. We offer one important explanation for this outcome—these nations have fiscal structures articulated primarily around politicized intergovernmental transfers rather than interpersonal income redistribution. High interregional redistribution combined with very low levels of interpersonal redistribution are consistent with their preference structures that are linked to uneven regional income and regionalized national representation In these federations local elites of less populated regions appear to have succeeded in securing their first preference—a political and fiscal system that transfers considerable resources to them interregionally, without engaging in large-scale interpersonal redistribution. This institutional logic has not been eliminated with recent policy reforms.
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