Social Spending and Income Inequality in Latin America. A Panel Data Approach

Abstract

The relationship between social policy and inequality has often been contentious in Latin America. In this context, this article analysed the relationship between social spending and income inequality in the region in the short, medium, and long run. For this purpose, data on sixteen Latin American countries in the period 1990-2017 were gathered and analysed through a panel data study. The results showed that, in line with the findings at a global level, increased levels of overall social spending are indeed associated with reduced levels of income inequality in this region. However, each one of the four main areas of social spending were observed to have different effects on income inequality. Additionally, the results showed that, despite the reforms and the increases in budgets, the social protection and social services systems still have problems reaching those at the bottom of the income distribution in the region.