Determinants of income inequality reduction in the Latin American countries

Abstract

This article analyses patterns of income inequality and its determinants in the countries of Latin America in the period 2004–2013. First, income distribution in several countries is determined using the Theil index and is found to have decreased over the study period. An econometric panel data model is then employed to study the determinants of the level of inequality. Per capita GDP, per capita health spending, tax pressure, the poverty rate, the literacy rate and years of schooling are found to be statistically significant variables in explaining inequality. Multivariate techniques are then used to group the countries by level of inequality, thereby establishing a classification in terms of ability to reduce inequality.