Inequality and Poverty under Latin America's New Left Regimes

Inequality and poverty fell sharply in many Latin American countries during a decade in which voters in ten countries chose left-leaning leaders. Are these developments related? Using data for 18 Latin American countries, this paper presents econometric evidence that social democratic regimes in Brazil and Chile were more successful at reducing inequality and poverty than the so-called populist regimes of Argentina, Bolivia, and Venezuela. Both groups implemented policies to redistribute income, but the social democratic regimes' 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). Conversely, inequality and poverty in Brazil and Chile fell to historic lows. Second, overall terms of trade shocks were more favorable to Argentina and Venezuela, so part of the drop in inequality can be attributed to commodity price booms.