Is the Decline in Inequality in Latin America Here to Stay?

Abstract

The 2000s decade represented a turning point in the increasing inequality trend that had been observed in Latin America during the second half of the twentieth century. This paper offers an analysis of the association between these shifts and short-, medium- and long-term factors. For our exploration we assemble a database on income distribution indicators systematically calculated directly from household surveys with emphasis on within-country consistency, methodology, definitions and coverage for the 1980–2013 years. This database allows observing clearly that the increases in inequality throughout the 1980s and 1990s decades have been counteracted by the improvements in the 2000s and the initial years of the 2010 decades. From our econometric exploration we find that (a) while there are short-term forces that are associated with underlying improvements in the distribution—including human capital accumulation and declines in the population dependency rate, (b) medium-term factors that could have been inequality-increasing in the past ameliorated their effect in the 2000s years—namely, the effect of the trade reforms of the 1980s which faded away toward the end of the past century and (c) there are two short-term forces that might have played an important progressive role during the 2000s years, but that could shift in the opposite direction in the near future—namely, the improvement in terms of trade and the declining returns to schooling. Thus, we conclude that the improvement in income distribution in the region could be only a temporary phenomenon.