More Unequal or Not as Rich? Revisiting the Latin American Exception

Latin America is often portrayed as a global exception to the rising or consolidating inequality trends of the early twenty-first century. However, the use of administrative data and macroeconomic aggregates casts doubts on this survey-based narrative. In this paper we ask whether the region was exceptional after all. We address this question by building the most comprehensive database thus far, which accounts for 80% of the region's population and combines harmonized surveys, social security and tax data, and national accounts. We produce a set of inequality indicators—pre- and post-tax, based on alternative units and income definitions—which allows us to track the distributional effects of each methodological decision and reconcile divergent trends. The reconciliation of micro and macro data present us with a dilemma: either the region is more unequal than previously thought or it is not as rich. While the downward inequality trend did exist for some countries, it is not present for the entire region. The falling inequality narrative does hold for the bottom 99% post-tax incomes—more so when social spending is considered—but flattens or reverses in the largest economies once capital incomes and the top 1% are better accounted for. These results confirm the strengths and highlight the limits of Latin America's redistributive policies during the period. (Stone Center on Socio-Economic Inequality Working Paper)