Income Redistributive Effects (IREs) on Poverty and Inequality in Latin America: A Cross-Country Analysis

Abstract

This paper analysed the effects of taxes and benefits on income inequality and poverty in Latin America. The study used an exploratory research design, with both linear and nonlinear regression models. The paper found that both direct and indirect taxes have no direct influence on income inequality and poverty in a short-term. Significantly, the social spending is found to reduce both poverty and inequality. The paper concluded that, taxes –benefits system in Latin America is effective to eradicate income inequality and poverty, but it is ineffective to reduce the poverty rate and income inequality amongst the countries. The paper recommended that the countries in Latin America should set the policy priority on increasing the social spending in term of direct benefits, in-kind benefits and contributory pensions and subsidies as found to have a linear relationship with the income inequality and poverty.