Inequality and Poverty under Latin America's New Left Regimes

During the last decade, inequality and poverty fell sharply in many Latin American countries; a period in which voters chose left-leaning leaders in ten countries including about half the region's population. Are these two developments related? Using data for 18 Latin American countries and political regime classification of Arnson and Perales (2007), this paper presents some econometric evidence that the social democratic regimes in Brazil, Chile and to a lesser extent Uruguay were more successful at reducing inequality and poverty than the so-called left populist regimes of Argentina, Bolivia and Venezuela. Both groups implemented policies to redistribute income, but the social democratic regimes redistributive efforts were more effective. Argentina and Venezuela started the 1990-2008 sample window with lower levels of inequality, so to some extent recent reductions in inequality are a return to "normal" levels (as estimated by fixed effects). Inequality and poverty in Brazil and Chile, on the other hand, fell to historic lows during this period. Second, overall terms of trade shocks were more favorable for Argentina and Venezuela, so part of the drop in inequality in those countries can be attributed to typically transient commodity price booms.