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 Monday, October 21, 13

Monday, October 21, 13 Value Title 150000 237500 325000 412500 500000 1970 1971 1972 1973 GDP Argentina constant prices 1993 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

Background  Inequality and Poverty Increased to largest in history, National Poverty Headcount more than 50% Monday, October 21, 13

Poverty Rate GBA INDEC (Disposable Income) 60.0 45.0 30.0 15.0 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 Monday, October 21, 13

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 of 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. Monday, October 21, 13

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 Monday, October 21, 13

Gini and Poverty 2003-2009 Monday, October 21, 13

National Poverty Indexes 2003-2009 Monday, October 21, 13

Curvas de Lorenz Argentina Monday, October 21, 13

Argentina Monday, October 21, 13

Change attributable to “macro” and to “redistribution”  Monday, October 21, 13

But contribution of market and redistribution di fg ers  When analyzing contribution of market (before redistribution policies) and redistributive e fg ect:  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 coe ffj cient). Monday, October 21, 13

Contribution of Redistribution to Change in Disposable Income Inequality and Poverty Monday, October 21, 13

GINI Argentina Monday, October 21, 13

Headcount Index 2.50 PPP day Monday, October 21, 13

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. Monday, October 21, 13

Monday, October 21, 13

Argentina : Share of Benefits Main Social Programs 1999 Share of benefits go ts going to each inco income group 2.5 < y < 10 < y < Net Market Income Group y<2.5 4 4 < y < 10 50 y > 50 Total ARGENTINA INA 35.0% 18.2% 45.8% 0.9% 0.0% 100.0% Jefas y Jefes d fes de Hogar 37.2% 20.2% 37.8% 4.4% 0.3% 100.0% Familias 22.9% 16.8% 34.2% 24.4% 1.7% 100.0% Unemploymen yment Insurance 15.4% 14.0% 52.6% 18.1% 0.0% 100.0% Becas 35.2% 7.4% 37.3% 19.7% 0.3% 100.0% Non Contributo tributory Pensions (inferred) 37.2% 18.6% 38.6% 5.6% 0.0% 100.0% Food 36.8% 20.9% 37.0% 5.2% 0.2% 100.0% Asignación Un ón Universal Por Hijo (simulated) 34.6% 12.2% 38.2% 14.7% 0.3% 100.0% At least one o one of the above (a) 22.5% 15.9% 47.7% 13.8% 0.1% 100.0% Education: All n: All Except Tertiary 5.0% 4.8% 41.2% 48.3% 0.6% 100.0% Education: Ter n: Tertiary Monday, October 21, 13

Argentina: Coverage Main Social Programs 2009 Per Percent of indi f individuals in each in ach income group who who are beneficiaries ries Total 2.5 < y 4 < y < 10 < y < Populati Net Market Income Group y<2.5 < 4 10 50 y > 50 on ARGENTINA 5.0% 3.8% 2.0% 0.0% 0.0% 1.8% Jefas y Jefes de H s de Hogar 36.5% 30.1% 11.2% 0.9% 0.8% 12.5% Familias 1.6% 2.2% 0.9% 0.6% 0.8% 1.0% Unemployment I ent Insurance 1.3% 2.1% 1.6% 0.4% 0.0% 1.2% Becas 33.2% 19.2% 17.5% 9.4% 3.4% 16.7% Non Contributor butory Pensions (inferred) 20.8% 15.9% 5.6% 0.7% 0.0% 6.7% Food 52.9% 46.6% 20.6% 3.9% 3.7% 21.2% Asignación Unive Universal Por Hijo (simulated) 91.9% 78.8% 47.6% 15.2% 7.9% 44.6% At least one of th e of the above (a) 31.1% 31.1% 19.0% 6.6% 1.1% 17.2% Education: All Ex All Except Tertiary 1.8% 2.5% 4.6% 6.7% 2.8% 4.8% Education: Tertia Tertiary 68.1% 63.9% 34.3% 11.1% 6.1% 33.0% Health (b) 1.0% 3.1% 12.9% 19.9% 17.4% 12.9% Contributory Pen ry Pensions Above (all abov l above for benefits except food, 90.4% 76.1% 45.7% 14.8% 7.9% 43.2% at least one for e for beneficiaries) Monday, October 21, 13

BENEFITS PER BENEFICIARY BY DAY PPP 2005 2.5 < y 4 < y < 10 < y < y < 2.5 y > 50 Total < 4 10 50 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 mployment Insurance rance 1.36 1.09 1.11 1.52 2.50 1.25 1.30 1.12 1.17 1.94 0.00 1.27 Becas Non Contr Contributory Pensions Pensions (inferred) 3.87 2.06 2.38 2.90 4.19 2.84 0.15 0.14 0.18 0.26 0.00 0.16 Food Asignación Universal Asignación Por Hijo ( Hijo (simulated) 1.22 1.14 0.96 0.88 0.85 1.07 Above (all ove (all above for benefits, efits, at least one 2.26 1.35 1.47 2.20 2.60 1.75 for benefic beneficiaries) Monday, October 21, 13

Monday, October 21, 13

Percentage of People 65 and Older Receiving Any Kind of Pensions: 2003, 2006 and 2009 Monday, October 21, 13

Problems of this redistribution 1) Public expenditure increases to more than 40% of 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, di ffj cult to decrease. Monday, October 21, 13

ARGENTINA : Government Spending by Monday, October 21, 13

Financing of Government Spending Monday, October 21, 13

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. Monday, October 21, 13

Evolution of Contributory, Noncontributory and Moratorium Pensions 2003-2009: Millions of Individuals Monday, October 21, 13

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. Monday, October 21, 13

Beneficiaries of Social Programs 50% 38% 25% 13% 0% 1997 2003 2006 2009 Monday, October 21, 13

WORK IN PROGRESS Monday, October 21, 13

Taxes Monday, October 21, 13

Increase tax collection 2000-09 Monday, October 21, 13

Monday, October 21, 13

Previous studies Tax Incidence  Ministerio de Economia (1996)  Gasparini (1998)  Gomez Sabaini et al (2002)  Fenochietto and Pessino (2007)  Gasparini and Cruces (2008)  … Monday, October 21, 13

Incidence Results  Although the authors made di fg erent 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 Monday, October 21, 13