Social Spending and Income Redistribution in Argentina During the - - PowerPoint PPT Presentation

Social Spending and Income Redistribution in Argentina During the 2000s: the Increasing Role of Noncontributory Pensions Commitment to Equity

Fiscal Policy and Income Redistribution in Latin America Thursday, October 17 and Friday, 18, 2013 Tulane University • New Orleans, LA

Nora Lustig

Tulane University

Carola Pessino

Universidad del CEMA

1 Monday, October 21, 13

Background

Crisis 2001-2002 in Argentina: default

and devaluation

Real GDP fell 5% in 2001 and almost

12% in 2002

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150000 237500 325000 412500 500000 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GDP Argentina constant prices 1993

Value Title

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Background

 Inequality and Poverty Increased to largest in

history, National Poverty Headcount more than 50%

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Poverty Rate GBA INDEC (Disposable Income)

15.0 30.0 45.0 60.0 May-88 Oct- 88 May-89 Oct- 89 May-90 Oct-90 May-91 Oct-91 May-92 Oct-92 May-93 Oct-93 May-94 Oct-94 May-95 Oct-95 May-96 Oct-96 May-97 Oct-97 May-98 Oct-98 May-99 Oct-99 May-00 Oct-00 May-01 Oct-01 May-02 Oct-02 May-03 2nd 2003 1st 2004 2nd 2004 1st 2005 2nd 2005 1st 2006

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Findings

 What happened to poverty and inequality after

the crisis?

 We show that from the peak of the crisis it

decreased substantially, but stayed at the level

• f the 90s, how it was done?

 Furthermore, current levels of poverty and

inequality rest on fragile stance, fiscally unsustainable and generating perverse incentives towards informality and welfarism.

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What happened with Poverty and Inequality after Crisis

 The “Observed” Indexes (Disposable Income):  National Moderate poverty decreased from 55%

to 30% in 2009, those are the “high” levels of the 90s.

 International poverty 4US$ and 2.5 US$ PPP also

decreased from 38% to 14% and 23% to 5%.

 GINI decreased from 0.520 to 0.447

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Gini and Poverty 2003-2009

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National Poverty Indexes 2003-2009

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Curvas de Lorenz Argentina

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Argentina

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Change attributable to “macro” and to “redistribution”



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But contribution of market and redistribution difgers

 When analyzing contribution of market (before

redistribution policies) and redistributive efgect:

 Between 2003 and 2006 the fall in poverty and

inequality mostly explained by market (rebote) and international context.

 Between 2006 and 2009, the fall is explained

mostly by redistribution, (90% of Extreme Poverty and 40% of GINI coeffjcient).

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Contribution of Redistribution to Change in Disposable Income Inequality and Poverty

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GINI Argentina

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Headcount Index 2.50 PPP day

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Flagship programs

 Redistribution occurs principally because of the

moratoria previsional, and other non- contributory pensions, and in second place with the AUH that we simulated in this study.

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Argentina: Share of Benefits Main Social Programs 1999

Share of benefits go ts going to each inco income group Net Market Income Groupy<2.5

2.5 < y < 4 4 < y < 10 10 < y < 50 y > 50 Total

ARGENTINA INA Jefas y Jefes d fes de Hogar

35.0% 18.2% 45.8% 0.9% 0.0% 100.0%

Familias

37.2% 20.2% 37.8% 4.4% 0.3% 100.0%

Unemploymen yment Insurance

22.9% 16.8% 34.2% 24.4% 1.7% 100.0%

Becas

15.4% 14.0% 52.6% 18.1% 0.0% 100.0%

Non Contributo tributory Pensions (inferred)

35.2% 7.4% 37.3% 19.7% 0.3% 100.0%

Food

37.2% 18.6% 38.6% 5.6% 0.0% 100.0%

Asignación Un ón Universal Por Hijo (simulated)

36.8% 20.9% 37.0% 5.2% 0.2% 100.0%

At least one o

• ne of the above (a)

34.6% 12.2% 38.2% 14.7% 0.3% 100.0%

Education: All n: All Except Tertiary

22.5% 15.9% 47.7% 13.8% 0.1% 100.0%

Education: Ter n: Tertiary

5.0% 4.8% 41.2% 48.3% 0.6% 100.0%

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Argentina: Coverage Main Social Programs 2009

Per Percent of indi f individuals in each in ach income group who who are beneficiaries ries Net Market Income Groupy<2.5

2.5 < y < 4 4 < y < 10 10 < y < 50 y > 50 Total Populati

• n

ARGENTINA Jefas y Jefes de H s de Hogar

5.0% 3.8% 2.0% 0.0% 0.0% 1.8%

Familias

36.5% 30.1% 11.2% 0.9% 0.8% 12.5%

Unemployment I ent Insurance

1.6% 2.2% 0.9% 0.6% 0.8% 1.0%

Becas

1.3% 2.1% 1.6% 0.4% 0.0% 1.2%

Non Contributor butory Pensions (inferred)

33.2% 19.2% 17.5% 9.4% 3.4% 16.7%

Food

20.8% 15.9% 5.6% 0.7% 0.0% 6.7%

Asignación Unive Universal Por Hijo (simulated)

52.9% 46.6% 20.6% 3.9% 3.7% 21.2%

At least one of th e of the above (a)

91.9% 78.8% 47.6% 15.2% 7.9% 44.6%

Education: All Ex All Except Tertiary

31.1% 31.1% 19.0% 6.6% 1.1% 17.2%

Education: Tertia Tertiary

1.8% 2.5% 4.6% 6.7% 2.8% 4.8%

Health (b)

68.1% 63.9% 34.3% 11.1% 6.1% 33.0%

Contributory Pen ry Pensions

1.0% 3.1% 12.9% 19.9% 17.4% 12.9%

Above (all abov at least one for l above for benefits except food, e for beneficiaries)

90.4% 76.1% 45.7% 14.8% 7.9% 43.2%

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BENEFITS PER BENEFICIARY BY DAY PPP 2005

y < 2.5 2.5 < y < 4 4 < y < 10 10 < y < 50 y > 50 Total Jefas y Je s y Jefes de Hogar 0.35 0.34 0.35 0.48 0.00 0.35

Familias

0.54 0.52 0.55 0.97 2.31 0.56 Unemplo Insurance mployment rance 1.36 1.09 1.11 1.52 2.50 1.25

Becas

1.30 1.12 1.17 1.94 0.00 1.27 Non Contr Pensions Contributory Pensions (inferred) 3.87 2.06 2.38 2.90 4.19 2.84

Food

0.15 0.14 0.18 0.26 0.00 0.16 Asignación Por Hijo ( Asignación Universal Hijo (simulated) 1.22 1.14 0.96 0.88 0.85 1.07 Above (all benefits, for benefic

• ve (all above for

efits, at least one beneficiaries) 2.26 1.35 1.47 2.20 2.60 1.75

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Percentage of People 65 and Older Receiving Any Kind

• f Pensions: 2003, 2006 and 2009

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Problems of this redistribution

1) Public expenditure increases to more than 40%

• f GDP financed by distortive taxes, inflation

tax and non-orthodox mechanisms. Part of increase with export taxes, sensitive to commodities 'prices. Part of the increase related to indirect subsidies to firms, diffjcult to decrease.

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ARGENTINA : Government Spending by

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Financing of Government Spending

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Problems of this redistribution

 2) The redistribution of second part of decade

thanks principally to “moratoria”.

 It was partially subsidized through contributory

pensions.

 Disincentives to contribute to social security,

and incentives to informality.

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Evolution of Contributory, Noncontributory and Moratorium Pensions 2003-2009: Millions of Individuals

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Problems of this redistribution

3) As a consequence, the total number of beneficiaries of social programs increase enormously over decade: from about 5% and not more than 10% in the 90s

 With crisis, increase to 24% in 2003  But with the crisis over, in 2009 43% of

population depended on social transfers, to get poverty levels similar to the 90s.

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Beneficiaries of Social Programs

0% 13% 25% 38% 50%

1997 2003 2006 2009

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WORK IN PROGRESS

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Taxes

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Increase tax collection 2000-09

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Previous studies Tax Incidence

 Ministerio de Economia (1996)  Gasparini (1998)  Gomez Sabaini et al (2002)  Fenochietto and Pessino (2007)  Gasparini and Cruces (2008)  …

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Incidence Results

 Although the authors made difgerent assumptions

regarding the incidence of some taxes, they found that the tax system is mildly regressive: Gomez Sabaini et al (2002) found that the tax system was mildly regressive with a Kakwani index of -0.026, and Gasparini found a Kakwani index of -0.02o

 None of these studies adjust for tax evasion, that

can render the whole tax system more regressive since those that can evade are usually at the top of the income distribution, see Fenochietto and Pessino (2007) that show that the regressivity if the system can be diminished mainly by reducing tax evasion.

 They did not consider the inflation tax,not important

for the 90s

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Incidence assumptions

 Using data 1995 ENGHO  The more recent study of Gasparini and Cruces

(2008) assume same incidence as in 1996 to the structure of taxes up until 2006 and claim that taxes are more progressive since there was “a shift in favor of the more progressive export and financial levies”

 Comparing 1997 and 2009, the share of most

consumption taxes on total revenue fell in more than 14 percentage points, while the share of trade, financial transactions and social security taxes increased in 15 percentage points.

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Incidence assumptions

 Moreover, as inflation increased after the

devaluation in 2001 and reached up to 25% in 2009, the inflation tax also should be taken into account to study the progressiveness or regressiveness of the tax system.

 Hence, the question is if taxes that increase in

share are more progressive than those that were reduced

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Incidence of export taxes and financial transactions tax

 Of the studies surveyed only Gomez Sabaini et al

(2008) analyzed the incidence of export taxes, and financial transaction taxes; however, their concentration index is constructed regarding equivalized income correcting for misreporting and difgers from the present study, hence we also rely on independent studies for Argentina

• r studies from other countries. We find that

there are mixed results and some of them are still controversial and not resolved.

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Are export taxes regressive?

 The incidence of export taxes, is diffjcult to

determine and not much consensus exists; also it might depend on several characteristics of country, in particular which of the exported goods are taxed.

 First of all, there seems to be a “prior” belief that

export taxes they are progressive assuming that they impact mainly on profits of large and rich landowners; however most thorough studies have mixed results, favoring in several cases regressiveness.

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Are export taxes regressive?

 Earlier studies showing regressiveness of export

taxes were undertaken in Madagascar with vanilla exports and Ghana with cocoa by Younger (1996) and Younger et all (1999)

 The reason the export taxes are regressive in those

cases was because there were a large number of farmers producing domestically those crops (not from the richest deciles) and basically no consumption from the poor from those goods (not a wage good). Remember that an export tax is a tax

• n domestic producers of the good in question and

a subsidy on domestic consumers

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Are export taxes regressive?

 Porto, Nogués, and Foders and Grundke

concluded that export taxes are welfare decreasing, and although not completely specified, regressive. The regressiveness ocurrs because the tax by decreasing the domestic price of the export good hits farmers and unskilled labor in rural areas in a regressive fashion from the production side and tend to decrease GDP and increase poverty in the medium run, and also because subsidies to consumers are mostly received by the upper deciles

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Are export taxes regressive?

 Share of soybeans in Argentina’s agricultural

production significantly, and unlike earlier periods

• f export taxes (in the 70s and 80s), the export

taxed good is not a “wage” good, hence it is much less justified on welfare grounds and in trying to protect the food basket of the poor to levy duties on exports

 Hence, regarding export taxes, it seems they are

regressive, more so in the medium and long run (because they also decrease GDP and thereby increase poverty); however we do not have a concentration index to simulate its replacement for taxes on goods, in particular the value added tax.

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Are export taxes regressive?

 In the simulation assumptions  : 1) progressive and assuming that is half as

personal income tax and half as payroll taxes (since it has also incidence on workers) or

 2) that is regressive and its incidence is the

same as the valued added tax .

 Distortive in the long run, and hence this

alternative is more in accord with the long run efgects of the tax.

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Is financial transactions tax progressive?

 Also doubt and two assumptions  1) Progressive (on rich banks)  2) Regressive (cascading on consumption)  As export duties and restrictions, this tax has

efgects in the long run; decreasing growth and increasing poverty.

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CC of Taxes

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Definiciones de progresividad y regresividad

48 Monday, October 21, 13

Change in incidence

 . In the short run, the change in the structure of

taxation appears to be more “pro- poor” (demagogic?) than in 1997, but in the medium and long run it is almost the same as in the 90s but with much more economic long-run losses.

 Since Gini was 0.498 and the concentration index

ranges from 0.416 to 0.369, the tax system turns

• ut to be relatively regressive under any of the

hypothesis and taking or not into account the inflation tax,

 Kakwani -0.052 under the first hypothesis and

without the inflation tax, to

 -0.057 with inflation tax and to –  0.099 with the second hypothesis and the inflation

tax.

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