nep-lam New Economics Papers
on Central and South America
Issue of 2021‒05‒03
five papers chosen by

  1. Direct and Indirect Effects of Lockdown Policies on Poverty and Inequality in Latin America By Andrés à lvarez; Oscar Becerra; Catalina Bernal; Julio Daly; Juliana Quigua; Yyannu Cruz Aguayo
  2. Trade and Informality in the Presence of Labor Market Frictions and Regulations By Rafael Dix-Carneiro; Pinelopi Koujianou Goldberg; Costas Meghir; Gabriel Ulyssea
  3. The Pink Tide and Inequality in Latin America By Gérman Feierherd; Patricio Larroulet; Wei Long; Nora Lustig
  4. Audits and the Quality of Government By Maximiliano Lauletta; Martín A. Rossi; Christian A. Ruzzier
  5. Dishonesty and Public Employment. By Guillermo Cruces; Martín A. Rossi; Ernesto Schargrodsky

  1. By: Andrés à lvarez; Oscar Becerra; Catalina Bernal; Julio Daly; Juliana Quigua; Yyannu Cruz Aguayo
    Abstract: We estimate the possible effects on poverty and income distribution of the crisis unleashed by Covid-19 on a group of Latin America and Caribbean countries, representing 80% of the total population in the region: Argentina, Brasil, Chile, Colombia, Ecuador, Honduras, Mexico, Paraguay, Peru, and Uruguay. We use household survey data from pre-crisis national household surveys and, based on prospective scenarios of vulnerability to the shock, we compute the impact that income losses may have on a country's poverty levels and inequality. Our vulnerability scenarios are based on the national policies used to prevent the rapid expansion of the Coronavirus. Additionally, for a sub-sample of 6 countries (Brazil, Chile, Colombia, Ecuador, Mexico and Peru) we use Input-Output linkages to estimate direct and indirect shocks to consider how the differences of the productive structures, economic linkages, and labor market characteristics of each country could result in different effects on poverty and inequality. We find a significant increase on poverty headcount ranging from 25% to 33% percent in our different estimations. The results show heterogeneity on the exposure to the shocks. Two main factors explain differences across countries: their level of specialization in activities labeled as essential (e.g., agriculture, public sector, food retail) and their level of employment protection and stability (i.e., type of contract and employment in larger firms). We find a higher vulnerability to the propagation of the shocks in countries with a bigger agricultural sector, and less vulnerability in countries with bigger firms, and lower informality.
    Keywords: Covid-19, poverty, inequality, Latin America, lockdown policies, simulations
    JEL: N36 I38 I14 D57
    Date: 2021–04–13
  2. By: Rafael Dix-Carneiro (Duke University and NBER); Pinelopi Koujianou Goldberg (Yale University); Costas Meghir (Yale University); Gabriel Ulyssea (University College of London)
    Abstract: We build an equilibrium model of a small open economy with labor market frictions and imperfectly enforced regulations. Heterogeneous firms sort into the formal or informal sector. We estimate the model using data from Brazil, and use counterfactual simulations to understand how trade affects economic outcomes in the presence of informality. We show the following: 1) Trade openness unambiguously decreases informality in the tradable sector but has ambiguous effects on aggregate informality. 2) The productivity gains from trade are understated when the informal sector is omitted. 3) Trade openness results in large welfare gains even when informality is repressed. 4) Repressing informality increases productivity but at the expense of employment and welfare. 5) The effects of trade on wage inequality are reversed when the informal sector is incorporated in the analysis. 6) The informal sector works as an “unemployment buffer” but not a “welfare buffer” in the event of negative economic shocks.
    Keywords: Labor market effects of trade, Informality, Unemployment
    JEL: F14 F16 J46 O17
    Date: 2021–04
  3. By: Gérman Feierherd; Patricio Larroulet; Wei Long; Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University, Commitment to Equity Institute (CEQ).)
    Abstract: Latin American countries experienced a significant reduction in income inequality at the turn of the 21st century. From the early 2000s to around 2012, the average Gini coefficient fell from 0.514 to 0.476. The period of falling inequality coincided with leftist presidential candidates achieving electoral victories across the region: by 2009, ten of the seventeen countries had a leftist president – the so-called Pink Tide. We investigate whether there was a “leftist premium” on the decline in inequality and, if there was one, through which mechanisms. Using a range of econometric models, inequality measurements, and samples, we find evidence that leftist governments lowered income inequality faster than non-leftist regimes, increasing the income share captured by the first seven deciles at the expense of the top ten percent. Our analysis suggests that this reduction was achieved by increasing social pensions, minimum wages, and tax revenue.
    Keywords: income inequality, government ideology, Latin America, redistribution, direct transfers, minimum wage, taxation
    JEL: O1 D72 D63 I38 N36 H20
    Date: 2021–03
  4. By: Maximiliano Lauletta; Martín A. Rossi; Christian A. Ruzzier
    Abstract: We exploit the random assignment of Brazilian municipalities to an audit program to explore the link between audits and the quality of government. We find that audited municipalities employ less labor to provide a given level of public services, and change the way in which they screen their employees—relying less on discretion and more on merit. These improvements in bureaucratic efficiency and professionalization, which take place right away and persist four to five years after the audits, imply an increase in the quality of municipal governments.
    Keywords: bureaucracy, corruption, audits, efficiency, public sector employment
    JEL: D73 D78 H11 H70 J45 O12
    Date: 2020–11
  5. By: Guillermo Cruces; Martín A. Rossi; Ernesto Schargrodsky
    Abstract: We study the link between dishonesty and selection into public employment. When military conscription was mandatory in Argentina, eligibility was determined by a lottery and by a medical examination. In order to avoid conscription, drafted individuals had strong incentives to cheat in their medical examination. These incentives varied with the lottery number. Exploiting this exogenous variation in the propensity to engage in dishonest behavior during early adulthood (the “impressionable” years), we find that individuals with higher probability of having cheated in their health checks as young adults also show higher propensity to become public employees later in life.
    Keywords: Military service, conscription, public sector, state capacities, cheating
    JEL: K2
    Date: 2020–11

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