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BIPR | How Much Do We Really Know about Income Inequality in Latin America?
How Much Do We Really Know about Income Inequality in Latin America?

February 26, 2024 - 18:30

Francisco H. G. Ferreira, London School of Economics and Political Science

Event Recap

After being neglected for a long time, income inequality is now back in the limelight. Despite the availability of income inequality estimates for many countries, disparities across sources remain staggering, as Professor Ferreira's shows, by reviewing statistical evidence on income inequality in Latin America and the Caribbean (LAC) over the past 75 years. He identified three main culprits for such disparities : different data sources, different income concepts, and different treatments of the same data. Household surveys, administrative data, and national accounts aggregates were scrutinized, revealing substantial variations in inequality statements.

In his research with Alvaredo, Bourguignon and Lustig, Ferreira built a comprehensive dataset of summary statistics, primarily concerned with the variation in inequality stemming from different sources. The research traced the history of household surveys in the region, noting two distinct phases: from the 1940s to the 1960s, when Latin America followed global patterns in studying the System of National Accounts (SNA) and distributional issues together, and from the mid-1970s onwards, with household surveys being collected more systematically. Despite variations, a discernible trend emerged, particularly in terms of inequality patterns over four different periods. However, challenges persist, notably in incorporating tax data and national accounts aggregates, due to substantial data and methodological hurdles.

The incorporation of tax data, a facet of the 'top incomes' literature, poses significant challenges, including issues related to definitions and the absence of the informal sector in these data. There are also challenges in national accounts data, with imputations based on assumptions and 'residuals' contributing to uncertainties. Methodological challenges, such as choices of thresholds and combining tax data with household surveys, further complicated the analysis. Despite these challenges, the researchers noted robust dynamic patterns in income inequality, with trends showing an inverted-U pattern across the region, likely influenced by common structural changes and global shocks.

In conclusion, Ferreira's research highlighted the considerable variation in income inequality estimates in LAC, attributing it to a combination of factors including sampling and measurement error, variations in income concepts and definitions, different data sources, and differential treatment of data. While recent progress in measuring income inequality in the region is evident, uncertainties remain, particularly regarding the credibility and robustness of level estimates. In their paper, Ferreira and his co-authors underscored the need for continued research to achieve a more accurate understanding of income inequality dynamics in Latin America and the Caribbean.

How Much Do We Really Know about Income Inequality in Latin America?

hosted by Professor Tito Cordella

Francisco H. G. Ferreira
London School of Economics and Political Science

Francisco H. G. Ferreira is the Amartya Sen Professor of Inequality Studies at the London School of Economics, where he is also Director of the International Inequalities Institute.

Ferreira is an economist working on the measurement, causes and consequences of inequality and poverty in developing countries, with a special focus on Latin America. His work has been published widely and been awarded various prizes, including the Richard Stone Prize in Applied Econometrics and the Kendrick Prize from the International Association for Research in Income and Wealth.

He is also an Affiliated Scholar with the Stone Center at the City University of New York; a non-resident Research Fellow at the Institute for the Study of Labor (IZA, Bonn); and currently serves as President of the Latin American and Caribbean Economic Association (LACEA). Prior to joining the LSE, Ferreira had a long career at the World Bank, where his positions included Chief Economist for the Africa Region and Senior Adviser in the Research Department. He has also taught in the faculties of Economics at the Pontifícia Universidade Católica do Rio de Janeiro and at the Paris School of Economics. He was born and raised in São Paulo, Brazil, and holds a PhD in Economics from the London School of Economics.
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