Tackling poverty and inequality

OECD Economics Department

©Ricardo Moraes/Reuters

Some 16.3 million Brazilians (8.5% of the population) live on less than $1.50 per day, which by most international definitions indicates extreme poverty. However, thanks to the efforts of successive governments, including that of the current president, Dilma Rousseff, the country has made tremendous progress in reducing that poverty and tackling income inequality too. 

In fact, income redistribution has become one of the pillars of Brazil’s growth model. While the bottom decile of Brazilians have enjoyed very fast annual income growth rates, comparable with China’s for instance, the top decile have had slower income growth, close to that of Germany.

A commonly used measure of inequality is the Gini index. According to this measure, inequality has declined at an average rate of 1.2% per year, and experts suggest that even without any growth in GDP per capita, the Millennium Development Goal of reducing poverty by half between 1990 and 2015 would have been met on time. Put differently, the economy would have had to grow by an extra 4 percentage points per year to achieve the same reduction in absolute poverty without this improvement in redistribution.

So, why the shift? It reflects changes in both wages and non-labour incomes such as transfers. One answer is education. Indeed, so-called “education premiums”— the gap between the remuneration of skilled and unskilled work—fell markedly as the supply of skilled labour increased. At the same time, better access to education has allowed more households to earn higher wages.

But arguably a bigger factor has been the effective use of social policies, and in particular a conditional cash transfer programme known as Bolsa Familia (or family grant). That measure provides small transfers to low-income families on condition that their children attend school, are vaccinated, and have regular health check-ups. It is a targeted programme, with each family’s eligibility re-assessed every two years through personal visits by social workers. These regular assessments have resulted in the establishment of an almost exhaustive register of poor families in the country called Cadastro Único. The programme covers almost 13 million families, and while the cash transfers alleviate poverty in the short term, the eligibility requirement that children attend school fosters the acquisition of literacy and numeracy skills, with clear long-term social and economic benefits. And, at only 0.4% of GDP, Bolsa Familia is very cost-effective.

Old-age pensions have also reduced poverty and inequality. Rising pension benefits have been effective in reducing inequality because pension beneficiaries tend to have below-average incomes. In fact, Brazil redistributes a larger share of national income to the elderly than any other Latin American country. Much of the sharp rise in pension benefits over the last decade was due to the fact that minimum pension benefits are indexed to the minimum wage, whose real value has jumped by over 70% in ten years.

Notwithstanding these successes, the transfer system has not done enough for youths, whose poverty rates remain visibly above average.

Fighting poverty remains a top priority in the government’s agenda. It has recently launched a new social policy programme called Brasil sem Miséria (Brazil without Poverty), which builds on and extends Bolsa Familia and aims to eradicate extreme poverty in Brazil by 2014. One focus of the programme is to provide poor families with more than just income transfers. In particular, the extensive information about the living conditions of poor families that has been acquired through Bolsa Familia and is collected in the Cadastro Único will be used to make other social services available to poor people according to their specific needs. This may include services like care for children and the elderly, training, assistance in finding employment, or the provision of loans. The new measure will extend the reach of transfer programmes into regions where they are currently underdeveloped, improve their targeting and help young people. If the success of the Bolsa Familia can be further expanded, then President Rousseff could move closer to her vision of eradicating extreme poverty and forging a fairer society in Brazil.

Barros, B., M. de Carvalho, S. Franco and R. Mendonça (2010), “Markets, the State and the Dynamics of Inequality: Brazil’s case study”, in L. López Calva and N. Lustig (eds.), Declining inequality in Latin America: a decade of progress?, Brookings Institution, Washington, DC.

OECD (2011), OECD Economic Surveys: Brazil, OECD, Paris.

See also: 

The OECD Economics Department

The UN Millennium Development Goals 

©OECD Observer No 287 Q4 2011

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