Declining inequality in Latin America: structural shift or temporary phenomenon?

Abstract

Latin America has been traditionally characterized as a region with high levels of income inequality. Since the early 2000s, however, inequality has started to decline in most countries, basically due to an expansion of the income share of the poorest deciles at the expense of the richest 10%. This paper addresses the question of whether the improvements are driven by long-term secular trends or structural changes which could be expected to continue to generate inequality-reducing effects for years to come; or alternatively, if the changes are driven by short-term variables which could move unexpectedly in the opposite direction and reverse the gains observed so far. From our statistical analysis, we conclude that the improvements are associated with both long- and short-term factors – with the short-term factors recently having greater inequality-reducing changes.