Inequality in Brazil: measurement, trends, impacts and policies

Marcelo Neri

Strategic Affairs (SAE/PR) and EPGE/FGV

Wider, Helsinki, September 2014

Script

• Overview: The Middle Path

• Inequality: Trends, Causes and Impacts –Per Capita Household Income - Various Surveys

– Interactions with Growth, Perceptions & Assets

–Residential Capital & Personal Income Tax (PIT)

• Public Policies Agenda: Bolsa Família (CCT)

US

China Brazil

Russia

India

1

10

20

30

40

50

60

70

80

90

100

Perc

enti

le o

f th

e W

orl

d In

com

e D

istr

ibu

tio

n

1 25 50 75 100

Each Country Source: Milanovic (2011)

Income Distribution Relative to the World

Brazilian Per Capita GDP (PPP) is 93.7% of the World GDP in 2012

Source: Milanovic (2011) and Neri (2011)

Brazil is a small World

1950 1960 1970 1980 1990 2009

2011

2000

2001 Year

Gin

i Co

effi

cien

t

.75

.65

.55

.45

0.535

0.581 0.589

0.607

0.527

0.539

0.594

China Effect Chindia Effect

Inequality Across Nations

Brazilian Per capita GDP PPP has grown 3.5% agains 3.6% of the world between 2002 e 2012

Falling in Brazil but still the 18th highest in 155 countries.

Inequality Within Municipalities Gini Index of Per Capita Income by Municipality - 2000

Source: Demographic Census/IBGE microdata

2000

2010

Inequality within Municipalities

Inequality fell in 80% of the 5500 Brazilian Municipalities

Gini Index of Per Capita Income by Municipalities - 2010

Source: Demographic Census/IBGE microdata

% Population with Income Below U$ 1.25 per day PPP

Source: IPEA / SAE from PNUD

Brazil: Middle of the World

Source: IPEA / SAE from the Demographic Census/IBGE

% Population with Income Below U$ 1.25 per day PPP

A World within Brazil

Component that Explains

Proportion of Extremelly Poor

% of Total Fall (69.3%)

Income growth 50.5%

Inequality Fall 49.5%

Total 100

Dynamic Decomposition of Extreme Poverty Fall of 69.3% in Brazil

Between 2002-2012

Source: IPEA/SAE from PNAD/IBGE microdata

What explains + Social Inclusion?

Growth or + Equity?

The Middle Path

1st MDG: Extreme Poverty Line (U$S 1,25 a day PPP) fell 69% in 10 years

Brazil Main Target

New Middle Class: Evolution of Economic Classes Pyramid 2003 - 2014

A to E Classes

2003 2012 2014*

Classe C

Classes DE

Classes AB

Source: CPS/FGV from PNAD/IBGE microdata * Forecast

97.853.753 63.578.915 54.249.506

68.588.466

110.512.609 118.992.329

14.176.889

25.150.938 29.526.727

97.8 Million

63.5 Million 54.2 Million

68.5 Million

110.5 Million 118.9 Million

14.1 Million 25.1 Million 29.5 Million

C Class INCREASED

42 Mi

AB Classes INCREASED

11 Mi

% Evolution of ABC Classes (Traditional and New Middle Classes)

% Classe ABC 1993

13.01 - 28.32

28.32 - 43.63

43.63 - 58.93

58.93 - 74.24

74.24 - 89.55

1993

% Classe ABC 2003

13.01 - 28.32

28.32 - 43.63

43.63 - 58.93

58.93 - 74.24

74.24 - 89.55

2003

% Classe ABC 2009

13.01 - 28.32

28.32 - 43.63

43.63 - 58.93

58.93 - 74.24

74.24 - 89.55

2009

% Classe ABC 1995

13.01 - 28.32

28.32 - 43.63

43.63 - 58.93

58.93 - 74.24

74.24 - 89.55

1995

% Classe ABC 2014

13.01 - 28.32

28.32 - 43.63

43.63 - 58.93

58.93 - 74.24

74.24 - 89.55

2014 (projection)

Source: Ipea from PNAD/IBGE microdata

1st Acquisition of Goods and Services

*only takes into account the ones who adquired the good or service in the last 3 years

28.5%

33.61% 35.29% 37.21% 38.88%

46.19% 47.67% 49.49%

64.57% 65.48%

74.80%

0%

10%

20%

30%

40%

50%

60%

70%

80%

1st time acquiring goods or services: Among those who purchased it in the last 3 years

Source: SAE desihned questions in SECOM – Quarterly Public Perception Poll – July/2014

0.535

Inequality of Per Capita Income (Gini)

Source: CPS;FGV from PNAD, PME and Census / IBGE microdata and Langoni (1973)

0.581

0.589

0.607

0.594

0.552

0.539

0.526

1960 1970 1979 1990 2001 2007 2009 2012

Year

Ineq

ual

ity

(Gin

i)

0,5

0,48

0,52

0,54

0,56

0,58

6

62

Long Run Perspective

1 3 5 7 9 11 17 19 13 15 2 4 6 8 10 12 18 20 14 16

Vintiles of Household Income - per capita

Cu

mu

lati

ve G

row

th (

%)

120

80

60

40

20

0

100

140

Cumulative Growth Rate of Per Capita Income by Vintiles 2001-2012(%)

Changes in Income Distribution 2001 -2012

richest poorest

Soucre: IPEA/SAE from PNAD/IBGE microdata

13

8%

11

4%

26

%

28

%

33

% 41

%

10

7%

99

%

96

%

89

%

85

%

84

%

79

%

76

%

74

%

67

%

62

%

57

%

53

%

47

%

5% 5%

Income of the 5% poorest has grown 550% faster than the 5% richest

Between 2011 and 2012

3 20 1 2 4 5 6 7 8 9 10 13 11 12 14 15 16 17 18 19

Source: SAE from PNAD/IBGE microdata

Income variation

Per Capita Household Income Variation by Vintiles (%)

20

15

10

5

0

20

.1

12

.0

11

.0

10

.0

9.6

9.1

9.0

8.9

9.0

8.4

8.4

7.8

7.0

6.7

7.5

7.2

6.9

6.1

5.7

9.4

Vintiles of per capita household income

Stability of the Gini in 2012: Has inequality stopped falling?

5%- 5%+

GINI

0.62

0.60

0.58

2003 2004 2014 (mar.)

2002 (Mar.)

0.64

0.54 2005 2006 2007 2008 2009 2010 2011 2012

0.56

2013

Source: IPEA/SAE from PME/IBGE (2002-2014) microdata *the table only covers SP, RJ, BH and Recife

Income Inequality

Inequality index, March 2002 to March 2014 – Per Capita Labor Earnings 6 Main Metrocities

*Per Capita Household Labor Income - 15 to 65 Years

Gini Moving Average 12

Months – Only 4 MRs*

Jan./14 55.4

Feb./14 55.3

Mar./14 55.2

April/14 55.1

May/14 55.0

June/14 54.9

July/14 54.8

16

Theil-T

0,85

0,80

0,65

2004 2014 (Mar.)

2003 (Mar.)

0,90

0,55 2005 2006 2007 2008 2009 2010 2011 2012

0,60

2013

0,70

0,75

Theil-T Moving Average 12

Months – Only 4 RMs*

Jan./14 60.7

Feb./14 60.5

Mar./14 60.2

April/14 59.9

May/14 59.7

June/14 59.4

July/14 59.3

Income Inequality

Source: IPEA/SAE from PME/IBGE (2002-2014) microdata *the table only covers SP, RJ, BH and Recife

*Per Capita Household Labor Income - 15 to 65 Years

Inequality index, March 2002 to March 2014 – Per Capita Labor Earnings 6 Main Metrocities

18.84%

Source: microdata from PME/IBGE. * between May 2002 and April 2003. ** between May 2013 and April 2014

12.94% 12.88% 12.00%

7.49%

3.51%

11 or + completed years of schooling

Professional Course

Contributes to Social Security

Formal Employees

Firm with 11 or + Employees

2 Years or + in the Job

Why Did It Fall?

Increase in Productive Attributes between 2003* e 2014** (in percentage points)

2003 - 2014 Growth of Productive Attributes R

eal G

row

th b

etw

een

20

03

an

d 2

01

4

(%)

0.914%

1.220%

0.505%

1.914%

1.014%

1.474%

Real Income Growth by Productive Attributes between 2003* e 2014** (Growth rate annual)

2003 - 2014

Total Mean 3.06%

Rea

l Gro

wth

bet

wee

n 2

00

3 a

nd

20

14

(%

) Income Growth by Productive Attributes Why Did It Fall?

11 or + completed years of schooling

Professional Course

Contributes to Social Security

Formal Employees

Firm with 11 or + Employees

2 Years or + in the Job

Source: microdata from PME/IBGE. * between May 2002 and April 2003. ** between May 2013 and April 2014

4.2%

4.7%

4.1% 3.8% 3.8%

Women Blacks Periphery Youth >5 people in the HH

Increase in Income (%) by Personal Attributes between 2003* and 2014** (Growth rate annual)

Rea

l Gro

wth

bet

wee

n 2

00

3 a

nd

20

14

(%

) 2003 - 2014

Total Mean 3.06%

Why Did It Fall?

Source: microdata from PME/IBGE. * between May 2002 and April 2003. ** between May 2013 and April 2014

Income Growth by Personal Attributes

Risk of Falling & Opportunity to Rise Across the Median in 12 months – Panel Data

2004/ 2005

2012/ 2013

2002/ 2003

2003/ 2004

2005/ 2006

2006/ 2007

2007/ 2008

2008/ 2009

2009/ 2010

2010/ 2011

2011/ 2012

Source: IPEA/SAE from PME/IBGE longitudinal microdata

Idiossincratic Risk of Per Capita Labor Income

The risk of crossing the median in an upward direction has never been so high: 27% of the people who were below the median crossed it in 2012/2013 – inversion of the risks of falling/rising 10 years later

30

25

15

10

5

20

16

.01

26

.24

18

.81

17

.03

16

.42

16

.80

17

.79

14

.41

17

.58

12

.73

13

.69

20

.12

19

.45

13

.71

13

.31

13

.19

13

.79

13

.57

23

.10

24

.86

26

.34

27

.13

Despite having lower chances of rising, the less educated, since 2002/2003, increased the controled chances (Dif in Dif) compared to the more educated. The same happens in favour of the black people and in favor of the residents in the periphery.

Equality Looking at the distribution among

individuals and social groups of

income flows, stocks of assets and

rights.

Sustainability (Assets)

Ability to maintain the standards of living

achieved. Stocks of human,

environmental, physical , cultural

and social assets.

Prosperity (Growth)

Growth in mean income and

consumption (not only GDP/National

Accounts but also look to

Household Surveys data and PIT).

Sensibility (Perceptions)

The last dimension is subjective, based on

people’s percepction about the country,

the public services and life quality.

Inclusive Development?: Interactions

GDP X Mean Income PNAD

190

170

150

130

110

2004 2005 2007 2012 2003

210

90 2006 2008 2009 2010 2011

Real Per Capita 2003 = 100

127.70

140.69

165.88

180.78

127.8

151.7

178.4

206.17

How much did it grow?

Source: IPEA/SAE from PNAD/IBGE microdata and National Accounting/IBGE

Prosperity Equality

Real differences are explained by the use of different deflators, in nominal terms mean growth rates are similar

X Median Income PNAD X 10% Poorest

Contribution of Income Sources to Growth by Different Income Groups

Which source of income (program) contributed the most to growth?

2001 – 2012 in annual percentage points.

Mean 40% Poorest 5% Richest 10% Poorest

Labor 2.75 4.27 1.99 2.97

Bolsa Família 0.10 0.83 0.00 3.29

BPC (Social Assistance)

0.06 0.28 -0.06 0.16

Social Security

0.74 0.89 0.32 0.23

Other 0.00 0.11 -0.02 0.14

Total 3.64 6.38 2.23 6.80 Source: SAE from PNAD/IBGE microdata

Determinants of the Gains in Real Per Capita Prosperity from 2001 and 2012 in annual percentage points

Shared Prosperity (Mean and Shared Bottom 40%)

Wages and Profits

Quantity = Participation Rate + Unemployment + Hours

Other

Educational Bonus

0.1 and 0.83

0.79 and 1.17

0.37 and -0.23

1.85 and 2.96 0.55 and 1.00

3.64 and 6.39

Value of Education

2.75 and 4.27

Labor

Total Effect

Bolsa Família

Social Security & BPC

MEAN AND GINI OF YEARS OF SCHOOLING

Source: Ipea / SAE, from Pnads 1992, 2002, 2011 e 2012 microdata

Education

Average

Gini Index

0.250

0.300

0.350

0.400

0.450

0.500

5

6

7

8

9

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Ave

rag

e Y

ears

of

Sch

oo

ling

Gin

i In

dex

of

Yea

rs o

f S

cho

olin

g

Average and Gini Index of Years of Schooling in the Occupied and Paid Population

Still Bad Photo but Good Movie

Sustainability

Grade in Maths in PISA/OECD (2003) Mathematics Profficiency

356

0

100

200

300

400

500

600

Ho

ng

Ko

ng

Fi

nlâ

nd

ia

Co

réia

H

ola

nd

a Li

ech

ten

stei

n

Jap

ão

Can

adá

Bél

gica

Su

íça

Mac

ao

Au

strá

lia

No

va Z

elân

dia

R

epú

blic

a Tc

hec

a Is

lân

dia

D

inam

arca

Fr

ança

Su

écia

Á

ust

ria

Irla

nd

a A

lem

anh

a R

epú

blic

a Es

lova

ca

No

rue

ga

Luxe

mb

urg

o

Hu

ngr

ia

Po

lôn

ia

Esp

anh

a Es

tad

os

Un

ido

s Lá

tvia

R

úss

ia

Itál

ia

Po

rtu

gal

Gré

cia

Sérv

ia

Turq

uia

U

rugu

ai

Tailâ

nd

ia

Méx

ico

In

do

né

sia

Tun

ísia

B

RA

SIL

Source: Pisa/OECD (countries that are in both 2003 and 2012 samples.

Points Improvement in Maths in PISA/OECD (2003-2012) Mathematics Profficiency

35

- 40

- 30

- 20

- 10

0

10

20

30

40

BR

ASI

L Tu

nís

ia

Méx

ico

P

olô

nia

Tu

rqu

ia

Po

rtu

gal

Itál

ia

Ind

on

ési

a R

úss

ia

Sérv

ia

Co

réia

H

on

g K

on

g

Mac

ao

Ale

man

ha

Tailâ

nd

ia

Gré

cia

Látv

ia

Suíç

a Ja

pão

A

ust

rália

Es

pan

ha

Liec

hte

nst

ein

Ir

lan

da

Esta

do

s U

nid

os

Luxe

mb

urg

o

No

rue

ga

Uru

guai

H

un

gria

C

anad

á D

inam

arca

B

élgi

ca

Ho

lan

da

Fran

ça

Rep

úb

lica

Eslo

vaca

R

epú

blic

a Tc

hec

a A

ust

rália

Is

lân

dia

N

ova

Zel

ând

ia

Fin

lân

dia

Su

écia

Source: Pisa/OECD.

Human Development Index by Municipality 2000 - IPEA/FJP/PNUD

Source: Ipea/PNUD/FJP from Demographic Census/IBGE 2010 microdata.

HDI 2000

0,800 a 1

0,700 a 0,799

0,600 a 0,699

0,500 a 0,599

0,000 a 0,499

In 2000, 41% of the municipalities presented very low HDI

Human Development Index by Municipality 2010 - IPEA/FJP/PNUD

Source: Ipea/PNUD/FJP from Demographic Census/IBGE 2010 microdata.

HDI 2010

0,800 a 1

0,700 a 0,799

0,600 a 0,699

0,500 a 0,599

0,000 a 0,499

In 2010, 0.6% of the municipalities presented very low HDI

Household & Individual Characteristics Own House Effect - 2003 to 2012

Rural Northeast Time to Work >2 hours

Room Wall made of Straw

No indoor plumbing

No bathroom or toilet

Source: IPEA from PNAD/IBGE microdata. Obs: The Own House Effect refers to the increase in imputed rent

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

80.7%

54.34%

81.7% 77.10%

92.70%

75.66% 74.71%

37.41%

Total Brazil

PARTICIPATION OF RESIDENTIAL CAPITAL IN FAMILIES’ PHYSICAL

ASSETS IS AROUND 50% IN BRAZIL AND ELSEWHERE

77.981%

51.718%

61.610% 57.160%

70.194%

90.079%

37.41%

Household & Individual Characteristics Own House Effect - 2003 to 2012

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

5% Poorest (PCHI)

7 to 14 Years of Age

Black Informal Employee

No instruction

Individual Income up to ¼ Minimum Wage

Total Brazil

Source: IPEA from PNAD/IBGE microdata. Obs: The Own House Effect refers to the increase in imputed rent

Also conditions within homes (durables) improved + than twice coverage of public services outside homes

Source: microdata from PNAD/IBGE

Inequality Fall in Residential Capital

-0,02

-0,01

0

0,01

0,02

0,03

0,04

0,05

0,06

0 10 20 30 40 50 60 70 80 90 100

Differences between concentration curves in time: 2003 to 2012 and 2009 to 2012

Property Income 2003/12 Household Income 2003/12

Property Income 2009/12 Household Income 2009/12

Values for July/2014

RENT YIELD versus PROPERTY VALUE

Rent Value/Property Value Ratio: PNAD/2003, SIPS/2013

0%

1%

2%

3%

4%

5%

6%

7%

8%

0 10 20 30 40 50 60 70 80 90 100

Ra

tio

Property Value (in R$ million)

Residential Capital

Besides equality and sustainability aspects, Popular Housing is also more Efficient

39

Personal Income Tax (PIT) Records and PNAD

2007 and 2012

Number Reporters

Gross Income*

Net Income*

Tax Due A. Total

Population PNAD

B. Household Per Capita

Income PNAD

C. Social Security / Occupied

2012 25,617,525

2,106.72

1,990.86

115.86 195,376,249 943.61 60.39%

2007 25,224,768

1,406.65

1,326.26

80.39 185,502,098 766.55 50.96%

Var 2012/2007 1.56% 49.77% 50.11% 44.12% 5.32% 23.10% 18.5%

Total Income PNAD A*B

Var 2012/2007

29.65% *In R$ billions of 31/12/2013

Source: RFB - IRPF

Proxy PNAD A*B*C

Var 2012/2007

53.63%

In Atkinson chartbook: mean correlation between Gini and the Top 1% share = 0.9

But how high income growth in PIT will impact top incomes shares wrt National Accounts?

40

Functional Income Distribution and Income Tax Records Using Main Declared Occupation – 2007 and 2012

Source: SRF - IRPF

2012 Gross Total

Income Net Total Income

Number Forms Filled

Income Tax

Taxable Income

Exclusive Taxable Income

Exempt Income

Capitalists 33.80% 34.96% 32.56% 14.65% 20.53% 39.22% 59.51%

Rentiers 14.49% 14.57% 13.94% 13.21% 12.74% 17.78% 17.06%

Workers 51.70% 50.47% 53.50% 72.14% 66.73% 43.01% 23.44%

2007

Capitalists 32.86% 33.90% 39.22% 15.75% 22.94% 43.81% 61.65%

Rentiers 17.37% 17.23% 16.09% 19.65% 17.22% 19.11% 17.24%

Workers 49.77% 48.86% 44.69% 64.60% 59.84% 37.08% 21.11%

National accounts report an increase in labor share from 54% to 56% from 2007 to 2011

0

0,05

0,1

0,15

0,2

0,25

0,3

0,35

0,4

2012* 2007*

Gini

41

Income Tax – Inequality Explained by Differences in Declared Occupations - Total Net Income - 2007 and 2012

Source: SRF - IRPF

0.2

87

0

,28

77

01

0,3

72

18

6

Gini

Var 2012/2007

-22.70%

0.3

7

42

Atk_2 Atk_1 Atk_05 GE_2 GE_1 GE_0 Gini

2012* 0.024592 0.012185 0.006057 0.011925 0.012035 0.012259 0.086052

2007* 0.032563 0.016713 0.008449 0.017475 0.017063 0.016854 0.101324

Dif. 2012/2007 -0.00797 -0.00453 -0.00239 -0.00555 -0.00503 -0.0046 -0.01527

Var 2012/2007

-24.48% -27.09% -28.31% -31.76% -29.47% -27.26% -15.07%

Income Tax – Inequality explained by Differences between

States – 2007 and 2012 - Total Net Income by Declared

Population PIT

Source: SRF - IRPF

Atk_ = Atkinson Inequality Index (respective coefficient of inequality aversion) GE_ = Generalized Entropy Index (respective parameter: 1= Theil L; 0 = Theil T)

Felicidade Futura ( 2015)

2.8 - 4

4 - 5.19

5.19 - 6.39

6.39 - 7.58

7.58 - 8.78

No Data

Source: Gallup World Poll microdata

Future Happiness Life Satisfaction in 5 years

Brazil has the highest expected future life satisfaction: 8.8 on a 0 to 10 scale

2014 2013 2012 2011 2010 2009 2008 2007 2006 Total Mean

Brazil 8.8 1 8.8 1 8.72 1 8.81 1 8.64 1 8.66 1 8.68 1 8.44 1 8.78 1 8.69

Brazil was for nine consecutive times the first in the World ranking of Future Happiness 5 years forward: The Country of the Future?

Sensibility

Source: Gallup World Poll 2006 microdata

Inequality of Future Happiness Gini of Expected Life Satisfaction in 5 years

In spite of its high income inequality, Brazil has the second lowest inequality of expected future life satisfaction (just after Belgium).

Nation 6.8

Source : IPEA 2013

Geography of Life Satisfaction in 5 Years

2018 as seen from 2013

0 – 4

4 – 5.19

5.19 – 6.39

6.39 – 7.58

7.58 or more

0 – 4

4 – 5.19

5.19 – 6.39

6.39 – 7.58

7.58 or more

Individual 8.46

Source: SIPS/IPEA 2013 microdata

Demonstrations Profile of Protesters

Variables / Participation Participated

Didn’t

participate but

wanted to

Dind’t

participate,

didn’t want to,

but approves

Disapproves

Average Age 31 37 46 50

Men 49% 37% 34% 32%

Until 4th grade completed 4% 18% 31% 45%

Incomplete or Complete

Tertiary Education 26% 16% 8% 5%

Receives Bolsa Família 19% 19% 24% 27%

Household Head Income

R$ R$ 1,464 R$ 1,382 R$ 1,104 R$ 871

Total Household Income

R$ R$ 2,836 R$ 2,544 R$ 1,802 R$ 1,722

Participation on 2013 Demonstrations – Order of Importance of Explanatory Variables: Stepwise Multinomial Ordered Logit Model

Variables Coefficient p-value Odds Ratio

1 Internet as Main Source Information 0.9893 <.0001 2.69 2 Northeast -0.736 <.0001 0.48 3 Head or Spouse -0.4172 0.0015 0.66

4 Work 0.2441 0.009 1.28

5 Incomes of the poorest improved + 0.3431 0.0001 1.41 6 Delay in Public Services Bill 0.2371 0.009 1.27 7 15-29 years 0.7224 <.0001 2.06 8 30-59 years 0.3755 0.0019 1.46

9 Is against Bolsa Familia 0.2638 0.0124 1.30

10 Has Private Health Insurance 0.192 0.0404 1.21

11 Confederations Cup City Host 0.443 0.0027 1.56

12 Central-West -0.4422 0.0555 0.64 13 Uses bus + than 3 times a week 0.2249 0.0464 1.25

Impacts of Bolsa Família on Final Goals: Changes in Life Satisfaction

Past X Present Happiness

Total Social Security Unemployment Insurance Bolsa Família

1

0

2

3

6

10

4

5

9

8

7

5.96 6.25

5.41 5.28

7.04 6.99 6.19

6.86

“Bolsa Família beneficiaries had initially the lowest past happiness ” “Present happiness is closer between beneficiaries and non-beneficiaries”

In the world ranking, Bolsa Família beneficiaries were before the program between Pakistan and Paraguay.

Source: PPPP/IPEA October 2012

Sensibility

Increase in Present Happiness compared to Past Happiness

14.42%

Total Social Security Unemployment Insurance Bolsa Família

10%

0%

20%

30%

60%

40%

50%

“Bolsa Família beneficiaries showed the biggest jump of happiness compared with five years before leading to more equality in present life satisfaction”

29.92%

11.84% 18.12%

“Comparing similar individuals with the same income today (in adittion to gender, age, marital status), receiving the Bolsa Família is associated with gains in present life satisfaction of 0.41 points compared to past life satisfaction*.”

Source: PPPP/IPEA October 2012 *Vis a vis non-beneficiaries, does not imply causality

Cash Transfers and Change in Life Satisfaction

0.00

0.20

0.40

0.60

0.80

1.00

0.00 1.00

Cu

mu

lati

ve In

com

e

Cumulative Population

Labor Social Security Other Incomes

BPC Bolsa Família Total per capita Income Source: SAE from microdata of PNAD/IBGE

BPC Poverty

Other incomes

Bolsa Família

Labor

Social Security

Total per capita Income

Equality Bolsa Família Impact on Inequality

The concentration curve of the Bolsa Família differs from other sources of income = Each R$ generates more Equality

Bolsa Familia covers 25% of Brazilian Population at a cost of 0,5% of GDP

Leaks

Government

Income from

Factors

Indirect Effects

Imports of goods and services

Indirect Taxes

Direct Effect

Direct Taxes

Social Accounting Matrix and (MCS) the Circular Flow of Income obtained with the expansion of a cash transfer

Production

Family income

Transfer Capital

Account

Rest of the World

Prosperity

Source: Neri, Vaz e Ferreira (2013) from the Social Account Matrix of 2009 (construcyed from POF and National Accounts)

Bolsa Família Program (BFP)

Continuous Cash Benefit (BPC)

Unemployment Insurance (SegDesem)

Wage Subsidy for Low Income Formal Employees

Private sector pensions (RGPS)

Public servants’ pensions (RPPS)

Severance Fund Formal Employment (FGTS)

Prosperity

GROSS DOMESTIC PRODUCT

Multipliers

1.78

1.19

1.06

1.06

0.53

0.52

0.39

Bolsa Família

BPC (Social Assistance)

Unemployment Insurance

Wage Subsidy

Public Servants Pensions

Private Employees Public Pension

Severance Fund FGTS

0 2.70

Multiplier Effects of social transfers on:

Bolsa Familia & Social Federalism 3.0

10

Per

cap

ita

fam

ily In

com

e (U

$)

15 5 0

Population

Benefits variable across families: Poorer get higher benefits

Poverty Gap

Local Poverty Line

Extreme Poverty Line BF US$ 1,25 PPP day

US$ 2 PPP day

Permanent Income Estimate: using Administrative Records (CadÚnico) info: Education all HH members, Housing & Public Services coverage, other benefits etc...

Identifies who is chronically poor, and not who says is poor

Life Cycle of Poverty - Simulation of the potential impact on extreme poverty rate by age of the new design benefits from Bolsa Família Program (%)

0

2

4

6

8

10

12

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80

Without Bolsa Família With Bolsa Família from 2011 With Bolsa Família from 2013

Source: V National Report on the Millennium Development Goals.

Without Bolsa Familia Extreme Poverty in 2012 would rise 36%

Bolsa Família Innovations

Payment Systems

• Completes Income towards the Poverty Line

• Use of International References (MDGs)

• Local Complements to Bolsa Família (Use of Permanent Income)

• Mothers Key Role (Search of Students Without Mother )

Conditionalities & Supply Services

• Parents Engagement (School Meetings on Saturdays)

• Early Childhood Education (Poor Kids are first in line; Cognitive & Non

Cognitive skills)

• Incentives to Perform (Alignment Teachers, Parents & Students + Youth Savings)

Bolsa Família Channels to Overcome Poverty (Means Approach)

OVERCOMING POVERTY

PRODUCTIVE INCLUSION

INTERNAL

INFRASTRUCTURE (HOUSEHOLD)

CONDITIONALITIES DEMAND FOR

EDUCATION AND HEALTH (EARLY CHILDHOOD)

MONETARY TRANSFERS

CASH IN THE HAND OF MOTHERS

CONSUMER PROTECTION,

FINANCIAL EDUCATION

CREDIT, INSURANCE

AND SAVINGS

INCOME GENERATION Productivity

EXTERNAL

INFRASTRUCTURE

CISTERNS

TRANSPORTATION

HEALTH SCHOOLS

LEVERAGE OPPORTUNITIES AND

SMOOTH SHOCKS Decent Markets

DIRECT EFFECT

WELL-BEING

DIRECT EFFECT

FAMILY BUDGET

Microcredit & Vocational Education

SUPPLY OF PUBLIC SERVICES

HOUSING

SEWAGE

Returning to Questions about the Quality of Development (Ends Approach)

• Inclusive? Falling Inequality;

• How much has grown? household perspective better than GDP;

• Perceived by the people? Subjective Measures of Well-Being rising;

• Sustainable? Rising Stocks of Education, Labor, HDI, Housing;

Poor Brazilians in household surveys have been improving more than the mean Brazil of National Accounts

Brazil has been since the dawn of the new millenium the Country of the Past (not the contry of the future)

Structural Change in the Basis of Assets Distribution = Deep Transformation

Map of Public Use Databases Household Surveys Microdata Administrative Records

PNAD (100,000 housedholds per year) National Accounts IBGE (Hybrid)

Annual Cross-section (1976 -2012); IBGE

Incomes, Residential Capital PIT Personal Income Tax

POF (48,000 families per year) 1974; 2002; 2008 25 million individuals; 2007 -2012

Details: Incomes, Spending and Taxes Unified Register for Social

Programs – CadÚnico (60 million individuals) MDS

Mapping Subjective Surveys National

CENSUS (18 million individuals) 1960 - 2010

PPPP (3800 Interviews. 215 cities), Ipea

Population Perceptions on Public Policies, Individuals 15

years or older

IBGE, Long Run Income and Special Detailed Maps

Monitoring Subjective Surveys International

PME (36 mil dwellings month) 1980-2014, IBGE

Monthly Labor with a two month lag, 6 Metrocities,

Gallup World Poll (more than 150 countries &

200.000 Interviews) 2006 to 2014 Subjective and Objective

Data, Individuals 15 years or older

Brazil Social: References & Links (Marcelo Neri)

Shared Prosperity: http://www.compaso.com.br/docs/PP_Shared_Prosperity_Final.pdf

Middle Class: http://www.compaso.com.br/docs/NCM_Neri_Sae_ClasseMedia_InglesFinal.pdf; http://www.cps.fgv.br/cps/livroncm/ & http://www.sae.gov.br/site/?p=22297

Social Tensions: http://www.compaso.com.br/docs/Social_tension_final.pdf

Pro Poor Growth: http://www.cps.fgv.br/cps/pesquisas/Politicas_sociais_alunos/2011/pdf/5PP_KakwaniNeriSonsdarticle.pdf

Income Policies: http://www.fgv.br/cps/docs/acad/BF_Livro_Scanner.pdf

Deprivation: http://www.compaso.com.br/docs/PP_inequality_relative_deprivation_and_social_class_Final.pdf

Social Transformations (portuguese – recent study) www.compaso.com.br/docs/Neri_TransformacoesSociaisAteJulho2014.pdf

Bolsa Família Book Summary http://www.ipea.gov.br/portal/images/stories/PDFs/140321_pbf_sumex_ingles.pdf

http://www.sae.gov.br/site/?p=22181

World Without Poverty https://www.wwp.org.br/en

Human Development Map = Data Brazilian Cities http://atlasbrasil.ipea.gov.br/2013/en/

Report on MDGs http://www.sae.gov.br/site/?p=23274

Social Targets: http://www.cps.fgv.br/cps/pesquisas/Politicas_sociais_alunos/2010/20100512/PDF/BES_MetasSociais_NeriXerez_Teoria.pdf

BRICS: http://www.ipea.gov.br/forumbrics/en/

Brazilian Microdata & Data http://www.econ.puc-rio.br/datazoom/ www.ibge.gov.br http://www.ipeadata.gov.br/

Thanks!