nep-lam New Economics Papers
on Central and South America
Issue of 2012‒10‒20
fifteen papers chosen by
Maximo Rossi
University of the Republic

  1. Declining Inequality in Latin America in the 2000s: The Cases of Argentina, Brazil, and Mexico By Nora Lustig; Luis F. Lopez-Calva; Eduardo Ortiz-Juarez
  2. Social Spending, Taxes and Income Redistribution in Uruguay By Marisa Bucheli; Nora Lustig; Maximo Rossi; Florencia Amabile
  3. Entrepreneurship, Economic Mobility, and Entrepreneurial Propensity: A Regional View Based on the Analysis of Selected Latin American Countries By Hugo D. Kantis; Juan S. Federico; Luis A. Trajtenberg
  4. Employment and Taxes in Latin America: An Empirical Study of the Effects of Payroll, Corporate Income and Value-Added Taxes on Labor Outcomes By Eduardo Lora; Deisy Johanna Fajardo
  5. Wages and informality in developing countries. By Costas Meghir; Renata Narita; Jean-Marc Robin
  6. Intra-generational Social Mobility and Entrepreneurship in Uruguay By Daniel Bukstein; Nestor Gandelman
  7. Coping with Financial Crises: Latin American Answers to European Questions By Eduardo A. Cavallo; Eduardo Fernández-Arias
  8. Intergenerational Mobility, Middle Sectors and Entrepreneurship in Uruguay By Nestor Gandelman; Virginia Robano
  9. Effectiveness of Weather Derivatives as a Cross-Hedging Instrument against Climate Change: The Cases of Reservoir Water Allocation Management in Guanajuato, Mexico and Lambayeque, Peru By Miriam Juarez-Torres; Leonardo Sanchez-Aragon
  10. More than Revenue: Main Challenges for Taxation in Latin America and the Caribbean By Teresa Ter-Minassian
  11. ÀHay un sesgo anti- laboral en los impuestos en AmŽrica Latina? By Eduardo Lora; Deisy Fajardo
  12. Latin American Middle-Class Entrepreneurs and their Firms: A Regional View and International Comparison By Hugo D. Kantis; Juan S. Federico; Luis A. Trajtenberg
  13. Middle-Class Entrepreneurs and Social Mobility through Entrepreneurship in Colombia By Paula Mejia; Marcela Melendez
  14. Intergenerational Mobility and Income Effects for Entrepreneurial Activity in Mexico By Viviana Velez-Grajales; Roberto Velez-Grajales
  15. Commitment to Equity Assessment (CEQ): Estimating the Incidence of Social Spending, Subsidies and Taxes Handbook By Nora Lustig; Sean Higgins

  1. By: Nora Lustig (Department of Economics, Tulane University); Luis F. Lopez-Calva (Poverty and Gender Unit, Latin America and the Caribbean Vice-presidency, World Bank); Eduardo Ortiz-Juarez (Regional Bureau for Latin America and the Caribbean, United Nations Development Programme (UNDP))
    Abstract: Between 2000 and 2010, the Gini coefficient declined in 13 of 17 Latin American countries. The decline was statistically significant and robust to changes in the time interval, inequality measures and data sources. In depth country studies for Argentina, Brazil and Mexico suggest two main phenomena underlie this trend: a fall in the premium to skilled labor and more progressive government transfers. The fall in the premium to skills resulted from a combination of supply, demand, and institutional factors. Their relative importance depends on the country.
    Keywords: Income inequality, skill premium, government transfers, progressivity, Latin America
    JEL: D31 I24 H53 O15 O54
    Date: 2012–09
    URL: http://d.repec.org/n?u=RePEc:tul:wpaper:1218&r=lam
  2. By: Marisa Bucheli (Economics Department, Universidad de la Republica, Uruguay); Nora Lustig (Department of Economics, Tulane University); Maximo Rossi (Economics Department, Universidad de la Republica, Uruguay); Florencia Amabile (Economics Department, Universidad de la Republica, Uruguay)
    Abstract: We apply a standard tax and benefit incidence analysis to estimate the impact on inequality and poverty of direct taxes, indirect taxes and subsidies, and social spending (cash and food transfers and in-kind transfers in education and health). The extent of inequality reduction induced by direct taxes and transfers is rather small (2 percentage points on average) especially when compared with that found in Western Europe (15 percentage points on average). What prevents Argentina, Bolivia and Brazil from achieving similar reductions in inequality is not the lack of revenues but the fact that they spend less on cash transfers-especially transfers that are progressive in absolute terms--as a share of GDP. Indirect taxes result in that net contributors to the fiscal system start at the fourth, third and even second decile on average, depending on the country. When in-kind transfers in education and health are added, however, the bottom six deciles are net recipients. The impact of transfers on inequality and poverty reduction could be higher if spending on direct cash transfers that are progressive in absolute terms is increased, leakages to the nonpoor are reduced and coverage of the extreme poor by direct transfer programs is expanded.
    Keywords: poverty, inequality, Uruguay, social spending
    JEL: I3 H2 H
    Date: 2012–08
    URL: http://d.repec.org/n?u=RePEc:tul:wpaper:1217&r=lam
  3. By: Hugo D. Kantis; Juan S. Federico; Luis A. Trajtenberg
    Abstract: Using household surveys from Argentina, Brazil, Peru, Ecuador, and El Salvador, this paper assesses the contribution of entrepreneurship to socioeconomic mobility and to understand the main variables associated with entrepreneurial propensity in selected Latin American countries. It is found that, at the aggregate regional level, income mobility is rather modest and that entrepreneurs do not outperform the rest of the population. However, entrepreneurs tend to perform as well as or better than non-entrepreneurs in countries where relative income mobility is moderate. In countries where relative income mobility is rather low, entrepreneurs tend to show less income mobility. Entrepreneurial propensity is rather modest, at 10 percent of the population. University graduates show the highest propensity in most of the countries studied, while women and young people were found to have the lowest entrepreneurial propensity.
    JEL: L26
    Date: 2012–07
    URL: http://d.repec.org/n?u=RePEc:idb:wpaper:4799&r=lam
  4. By: Eduardo Lora; Deisy Johanna Fajardo
    Abstract: This paper empirically explores the effects of payroll taxes, value-added taxes and corporate income taxes on a variety of labor market outcomes such as employment, unemployment, informality, and wages. Using national-level data on labor variables for 15 Latin American countries, the results indicate that the effects of each tax are distinctly different and may depend on several aspects of labor and tax institutions. Payroll taxes reduce employment and increase labor costs when their benefits are not valued by workers, but otherwise increase labor participation and do not raise labor costs. Value-added taxes increase informality and reduce skilled labor demand. In contrast, corporate income taxes may help reduce informality, especially among low-education workers but, when tax enforcement capabilities are strong, may reduce labor participation and employment of medium- and high-education workers.
    JEL: H24 H25 J21 J30 J32
    Date: 2012–09
    URL: http://d.repec.org/n?u=RePEc:idb:wpaper:4791&r=lam
  5. By: Costas Meghir (Institute for Fiscal Studies and Yale University); Renata Narita; Jean-Marc Robin (Institute for Fiscal Studies and Sciences Po)
    Abstract: It is often argued that informal labor markets in developing countries promote growth by reducing the impact of regulation. On the other hand informality may reduce the amount of social protection offered to workers. We extend the wage-posting framework of Burdett and Mortensen (1998) to allow heterogeneous firms to decide whether to locate in the formal or the informal sector, as well as set wages. Workers engage in both off the job and on the job search. We estimate the model using Brazilian micro data and evaluate the labor market and welfare effects of policies towards informality.
    Keywords: Wages, informality, developing countries
    Date: 2012–09
    URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:12/16&r=lam
  6. By: Daniel Bukstein; Nestor Gandelman
    Abstract: This paper follows an income-based, time-dependence approach to measure social mobility in Uruguay between 1982 and 2010. The paper finds that social mobility in Uruguay is considerable and reports evidence suggesting that this mobility is greater within cohorts of groups, such as those defined by gender or region, than between groups. Entrepreneurship and self-employment are associated with greater social mobility.
    JEL: D31 L26 O15
    Date: 2012–07
    URL: http://d.repec.org/n?u=RePEc:idb:wpaper:4795&r=lam
  7. By: Eduardo A. Cavallo; Eduardo Fernández-Arias
    Abstract: Europe faces challenges reminiscent of Latin American financial crises. The failure of recent liquidity support to normalize the situation in Europe suggests the need to refocus the policy debate on fundamentals: structural reform for growth and, where needed, restructuring to resolve banking crises and the debt overhang. Latin America’s experience yields relevant policy lessons for Europe on those fronts except concerning the use of sharp real devaluations to spearhead recovery: euro-zone countries following suit by reintroducing devalued national currencies would invite catastrophe. Despite this constraint, Europe stands a better chance of navigating the path out of the crisis because it has cooperative mechanisms unavailable in Latin America. European cooperation can provide support for orderly crisis resolution as well as growth and competitiveness within the currency union fold, to the benefit of all members. However, the path is uncharted, and successful regional cooperation will require innovation and political will.
    JEL: E61 F33 F34 F36 F53 G01
    Date: 2012–10
    URL: http://d.repec.org/n?u=RePEc:idb:wpaper:4804&r=lam
  8. By: Nestor Gandelman; Virginia Robano
    Abstract: This paper estimates the relationship between parents’ educational attainment and income and children’s schooling in Uruguay between 1982 and 2010. This relationship is interpreted as a measure of intergenerational social mobility, and the paper reports evidence that it has decreased over time. The paper finds that the probability that the children of the more educated remain among the more educated has grown, with analogous results for the less educated. As a result, the improvements in education of the 1980s and 1990s were unevenly distributed, with a bias against the disadvantaged. The paper also finds that while entrepreneurship status and belonging to the middle class matter in terms of social mobility as measured by compulsory education, i. e. , primary school and the first three years of secondary school, they do not have a notable effect on non- compulsory education, i. e. , the last three years of secondary school and higher.
    JEL: I24 J62 L26
    Date: 2012–07
    URL: http://d.repec.org/n?u=RePEc:idb:wpaper:4794&r=lam
  9. By: Miriam Juarez-Torres; Leonardo Sanchez-Aragon
    Abstract: Ongoing climate change will increase competition for water. Diversified demand for water—in contrast with the rigid design of water systems, institutions and infrastructure—could hinder the implementation of adaptation policies in water management for Latin American countries. In this context, weather derivatives are proposed as a complementary mechanism for the successful adoption of more efficient water allocations in irrigation districts. Weather derivatives spread risks and incorporate a better understanding of climate system behavior, strengthening irrigation districts’ ability to deal with water availability and demand. The model uses a dynamic water resource allocation model, historical precipitation and Intergovernmental Panel on Climate Change (IPCC) scenarios to find optimal water allocation strategies for the baseline scenario and in the presence of climate change. This analysis is applied to two irrigation districts in Latin America: one in Mexico and the other in Peru, with their corresponding particularities and results.
    JEL: G13 O13 O54 Q15 Q25 Q54
    Date: 2012–08
    URL: http://d.repec.org/n?u=RePEc:idb:wpaper:4793&r=lam
  10. By: Teresa Ter-Minassian
    Abstract: This paper aims to provide an overview of the current state of taxation in the Latin America and Caribbean (LAC) region, and its main reform needs and options. It previews the findings of recent studies prepared or commissioned by the Inter-American Development Bank (IDB) for its forthcoming flagship publication More than Revenue: Taxation as a Development Tool in the -Development in the Americas- series. Reflecting fiscal consolidation imperatives, the main objective of fiscal policies in the region in recent decades has been revenue mobilization, often at the expense of efficiency and equity objectives. This paper analyzes the region’s taxation in regard to revenue adequacy, efficiency, vertical and horizontal equity, ease of administration and compliance, and degree of fiscal decentralization, concluding that there is significant scope for reforms that would result in simultaneous improvement on several of these fronts. Although the paper does not provide a specific blueprint for reforms, which would need to be designed on a country-by-country basis, it identifies directions for reform that are relevant for most of the region.
    JEL: H20 H21 H22 H23 H24 H25 H26
    Date: 2012–09
    URL: http://d.repec.org/n?u=RePEc:idb:wpaper:4803&r=lam
  11. By: Eduardo Lora; Deisy Fajardo
    Abstract: Los impuestos a la n—mina junto con los salarios m’nimos han producido un notable encarecimiento de los costos laborales en AmŽrica Latina desde los noventa. Puesto que, simult‡neamente, las tasas de tributaci—n de las empresas se han reducido, esta nota analiza si, como resultado, hay un sesgo anti-laboral de los impuestos en los pa’ses latinoamericanos. Se utiliza una metodolog’a contable que permite calcular las tasas efectivas de tributaci—n del trabajo y del capital y comparar ambas entre s’. Como en los pa’ses desarrollados, en AmŽrica Latina las cargas tributarias est‡n sesgadas en contra de los ingresos laborales, en el sentido de que las tasas efectivas de los impuestos al trabajo (directos y a la n—mina) son mayores que las tasas efectivas de los impuestos al capital. Entre los pa’ses analizados, Venezuela, Guatemala, Colombia y Brasil tienen los mayores sesgos anti-laborales.
    JEL: E61 F33 F34 F36 F53 G01
    Date: 2012–10
    URL: http://d.repec.org/n?u=RePEc:idb:wpaper:4805&r=lam
  12. By: Hugo D. Kantis; Juan S. Federico; Luis A. Trajtenberg
    Abstract: Based on a cross-country comparison of dynamic new firms, this paper attempts to characterize Latin American middle-class entrepreneurs and their firms. In general, Latin American middle-class entrepreneurs tend to face more difficult conditions in terms of resources and skills acquisition than those belonging to more affluent social strata. They tend to have earlier exposure to business experience since they generally belong to families in which their fathers’ occupation allowed for such exposure, and the universities where they studied are sounder platforms for developing abilities and contacts. Likewise, compared to middle-class entrepreneurs from more developed regions, Latin American middle- class entrepreneurs tend to be less exposed to the business world and entrepreneurial role models. Additionally, they are more likely to rely on a less qualified and less business-specific support network, and initial financing is less accessible to them. The paper summarizes several key policy implications and recommendations derived from the analysis.
    JEL: L26 M13 O54
    Date: 2012–07
    URL: http://d.repec.org/n?u=RePEc:idb:wpaper:4800&r=lam
  13. By: Paula Mejia; Marcela Melendez
    Abstract: The paper uses microeconomic data to characterize entrepreneurs by income group and selected household, individual and business characteristics, finding that entrepreneurship is rare but more frequent in the upper class than the middle or lower classes. Middle-class entrepreneurs are, on average, better off than middle-class employees of similar characteristics but differ greatly from upper-class entrepreneurs in terms of educational attainment, the size of their businesses, and their outcomes. While entrepreneurs appear to have more income mobility than the average worker, this paper cannot establish whether this is true for middle-class entrepreneurs in particular, nor provide evidence to support the hypothesis that middle-class entrepreneurs’ activity is an engine for economic growth. Instead, the findings suggest that the types of businesses run by these entrepreneurs are characterized by low productivity. Consequently, policies to increase social mobility seem to hold greater promise for promoting higher productivity and welfare than policies encouraging entrepreneurship.
    JEL: I31 L26 O12
    Date: 2012–09
    URL: http://d.repec.org/n?u=RePEc:idb:wpaper:4797&r=lam
  14. By: Viviana Velez-Grajales; Roberto Velez-Grajales
    Abstract: This paper uses the Mexican Social Mobility Survey 2006 to analyze intergenerational social mobility as it relates to entrepreneurial activity. First, the paper analyzes whether entrepreneurs experience greater upward social mobility than self-employed workers or employees. Second, probit models are estimated to identify whether predetermined characteristics are the main determinants of the decision to become an entrepreneur. Third, using the propensity score matching method (PSM), the paper estimates the effect of entrepreneurial activity on income. Results show that entrepreneurs have more options for upward social mobility. For entrepreneurs with low-income parents, it is more difficult to reach the top of the socioeconomic distribution compared to those with middle- or upper-class parents. Second, the probability of becoming an entrepreneur increases when the respondent’s father was an entrepreneur. Finally, the mean effect of entrepreneurial activity on income is positive, and is greater for those whose parents belonged to the extreme ends of the socioeconomic distribution.
    JEL: C21 J62 L26
    Date: 2012–07
    URL: http://d.repec.org/n?u=RePEc:idb:wpaper:4796&r=lam
  15. By: Nora Lustig (Department of Economics, Tulane University); Sean Higgins (Department of Economics, Tulane University)
    Abstract: This handbook presents a step-by-step guide to applying the incidence analysis used in the multi-country project CEQ. We define the pre- and post-net transfers income concepts, discuss the methodological assumptions used to construct them, explain how taxes, subsidies and transfers should be allocated at the household level, and suggest what to do when the information on taxes and transfers is not included in the household survey. We also describe the indicators that are used to assess the distributive impact, progressivity and effectiveness of social spending, subsidies and taxes. In addition, we present sample Stata code for producing some of the indicators.
    Keywords: handbook, taxes and transfers, fiscal incidence, poverty, inequality
    JEL: H22 D31 D63 I32 I38
    Date: 2012–10
    URL: http://d.repec.org/n?u=RePEc:tul:wpaper:1219&r=lam

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