State Transfers, Taxes and Income Inequality in Brazil

Abstract

Using a factor decomposition of the Gini coefficient, we measure the contributionto inequality of direct monetary income flows to and from the Brazilian State.The income flows from the State include public sector workers' earnings, SocialSecurity pensions, unemployment benefits, and Social Assistance transfers. Theincome flows to the State comprise direct taxes and employees' social securitycontributions. Data come from the Brazilian POF 2008–09. We do not measureindirect contributions to inequality of subsidies granted to and taxation ofcompanies, nor the in-kind provision of goods and services. The results indicatethat the State contributes to a large share of family per capita incomeinequality. Incomes associated with work in the public sector—wages andpensions—are concentrated and regressive. Components related to the privatesector are also concentrated, but progressive. Contrary to what has been foundin European countries, public spending associated with work and social policiesis concentrated in an elite group of workers and, taken as a whole, tends toincrease income inequality. Redistributive mechanisms that could reverse thisinequality, such as taxes and social assistance, are very progressive butproportionally small. Consequently, their effect is completely offset by theregressive income flows from the State.Key words: Income distribution; social inequality; social policies; public work; pensions