By the end of the first decade of the 21st century, the most usual international depiction of Brazil is that of a burgeoning, upcoming country. Although in many ways frankly exaggerated, this marks a stark contrast with a not-so-distant past. This turnaround has had a lot to do with favourable international circumstances, but it also owes a lot to extensive reforms that made possible something that was almost unprecedented in Brazil: pro-poor growth. (?)Social Policies and the Fall in Inequality in Brazil: Achievements and Challenges

Pedro H. G. Ferreira de Souza

English

Research Papers in Economics

International Policy Centre for Inclusive Growth (IPC - IG)
Poverty Practice, Bureau for Development Policy, UNDP
Esplanada dos Ministérios, Bloco O, 7º andar
70052-900    Brasilia, DF -  Brazil
The views expressed in this page are the authors’ and not
necessarily those of  the United Nations Development
Programme or the Government of Brazil.
E-mail: ipc@ipc-undp.org    URL: www.ipc-undp.org
Telephone:   +55 61 2105 5000
The International Policy Centre for Inclusive Growth is jointly supported
by the Poverty Practice, Bureau for Development Policy, UNDP
and the Government of Brazil.
 February, 2012
No. 135
by Pedro H. G. Ferreira de Souza,
Institute for Applied Economic Research (IPEA)
By the end of the first decade of the 21
st century,
the most usual international depiction of Brazil
is that of a burgeoning, upcoming country.
Although in many ways frankly exaggerated,
this marks a stark contrast with a not-so-distant
past. This turnaround has had a lot to do with
favourable international circumstances, but it
also owes a lot to extensive reforms that made
possible something that was almost unprecedented
in Brazil: pro-poor growth.
The end result was a robust consumer-led
economic boom with an average GDP growth
rate of 4.4 per cent per year between 2004 and
2010, the highest since the late 1970s. During that
period, a thriving labour market created over 10
million formal jobs. After decades of rising or stagnant
inequality, the Gini index of the household per capita income fell
by 9 per cent during the 2000s. As a result of both trends, extreme
poverty—as measured by the World Bank’s US$ PPP 1.25/day
poverty line—declined abruptly, from 14 per cent in 2001
to less than 5 per cent in 2009.
The contribution of social expenditures to such encouraging
results should not be underestimated. Since adoption of the
1988 Federal Constitution, and especially since the mid-1990s, the
Brazilian social policies have finally both enlarged their scope and
improved their redistributive role, although there is still a long way
to go. For instance, in 2006, the four largest social expenditures—
on public education, public health care, Social Security and Social
Assistance—amounted to a hefty 19 per cent of the GDP, or
56 per cent of the total tax revenue.
While these expenditures represent a serious fiscal burden,
their benign effects should not be downplayed. The table
displays the dynamic decomposition of the Gini index by factor
components between 2001 and 2009 (Souza, 2011). It is striking
that the Bolsa Família and the BPC programs—the largest targeted
cash transfers in Brazil—are responsible for over 18 per cent of the
reduction in income inequality, even though they add up to less
than one per cent of total income. The contribution of the income
sources tied to the minimum wage—which rose by 81 per cent
during this period, reaching US$ PPP 270 in 2009—amounted
to 28 per cent of the decline in inequality.
Given recent trends in the labour market, it is unsurprising that
labour market income displays the single largest contribution
to the fall in inequality. One of the key factors behind this shift
is that Brazil finally managed to increase the overall educational
attainment while simultaneously diminishing the inequality of
educational opportunities. Between 2001 and 2009, the mean years of
schooling rose by 21 per cent (from 6.8 to 8.3) while the Gini index
of years of schooling fell by 17 per cent (from 0.347 to 0.288).
Such changes in the educational attainment of the workforce
contributed to the decline in earnings inequality. The dynamic GE(0)
decomposition of labour income by population subgroups shows
that a more homogeneously educated labour force sustained a
dominant income effect—69 per cent of the total reduction in
earnings inequality—as declining returns to education narrowed the
income gaps among the different levels of educational attainment.
Despite such advances, Brazil is still a middle-income country
with an unacceptably high level of income inequality, and thus it is
imperative to remain on track and keep the recent trajectory of pro-
poor growth going. This means that the challenges will probably
be increasingly more difficult, but there are reasons for optimism.
The renewed commitment to social programs since adoption of the
Constitution has largely turned them into valuable tools to reduce
poverty and inequality. Moreover, it is clear that there is still plenty
of room for improvement. Much-needed resources for education
and health care, for example, could be obtained by reforming
the Civil Servants’ Social Security, which is not only inordinately
expensive (about 4.3 per cent of GDP in 2006) and regressive
(its sizable pensions benefit mostly the upper-middle classes),
but also runs huge annual deficits. Likewise, some policies that
could greatly further reduce poverty and inequality—such as land
reform—have largely been cast aside and should be brought back to
the political agenda. In one way or another, such obstacles will to be
faced if Brazil is to continue on a socially inclusive trajectory.
Reference:
Souza, P.H. F (2011) Poverty, Inequality and Social Policies in Brazil, 1995-2009.
IPC-IG Working Paper No. 87. Brasilia, IPC-IG.
Social Policies and the Fall in Inequality in Brazil:
Achievements and Challenges
Source: Pesquisa Nacional por Amostra de Domicílios, 2001 and 2009.
Dynamic Decomposition of the Gini Index of Household Per Capita Income
Brazil, 2001-2009
Labour Minimum wage -0.010 0.001 -0.010 17.9
Other -0.001 -0.024 -0.025 45.5
Pensions Minimum wage -0.009 0.003 -0.006 10.5
Other 0.000 0.000 -0.001 1.0
Bolsa Família and predecessors -0.006 -0.001 -0.007 12.7
BPC -0.003 0.000 -0.003 5.7
Other -0.001 -0.003 -0.004 6.7
Total -0.031 -0.024 -0.055 100
As % of
Δ Δ Δ Δ Δ Gini
Income   Sources Composition
Effect
Concentration
Effect
Total

Dynamic Decomposition of the Gini Index of Household Per Capita Income Brazil, 2001-2009 Labour Minimum wage -0.010

Poverty, Inequality and Social Policies in

Social Policies and the Fall in Inequality in Brazil: Achievements and Challenges Source: Pesquisa Nacional por Amostra de Domicílios,

Social Policies and the Fall in Inequality in Brazil: Achievements and Challenges

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Social Policies and the Fall in Inequality in Brazil: Achievements and Challenges

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