How to Tackle Persistent Inequality in Latin America and the Caribbean
On November 6, 2023, the Georgetown Americans Institute (GAI) welcomed Luis Felipe Lopez-Calva, global director of the Poverty and Equity Global Practice at the World Bank, for a conversation on the policy tools available for Latin American and Caribbean countries to tackle persistent inequality. Alejandro Werner, founding director of the Georgetown Americas Institute moderated the conversation.
Lopez-Calva began his discussion by detailing the profound impact inequality has had in Latin America and the Caribbean. Despite making substantial strides in reducing poverty between 1999 and 2009, he highlighted a recent and disconcerting reversal, with poverty rates escalating to 30% in certain countries. This setback is attributed to a range of factors, including lackluster expected growth rates, soaring debt ratios, and fiscal constraints stemming from global financial crises and the pandemic.
Understanding the Incidence Curve
In the face of these challenges, Lopez-Calva elaborated on the formidable obstacles encountered by Latin American nations in their struggle against poverty, advocating for a comprehensive approach to tackle inequality. Central to his narrative was an emphasis on understanding the growth incidence curve, a vital tool for unraveling patterns in income distribution. Recognizing the macro context and addressing constraints that individuals face in contributing to growth are deemed imperative, Lopez-Calva emphasized that social protection systems are pivotal in reshaping the growth incidence curve.
Potential Solutions
Lopez-Calva further explored the repercussions of economic inequality on various societal facets, examining the challenges faced by political institutions in implementing policies to counter income inequality in Latin American democracies. He proposed potential solutions, including coalition building and labor market reforms, highlighting the critical role of labor markets in the transformative impact of investments in education, health, and market enhancements.
Contrary to prevailing assumptions, Lopez-Calva contended that the profound income inequality in the region cannot be solely attributed to the tax system. He described the intricacies of macroeconomic factors influencing progressivity in growth, while also criticizing the use of macro-data in analyzing the poverty-alleviating role of remittances. He advocated for a more nuanced understanding of the topic, considering factors such as underreporting. Ultimately, the focus of his presentation converged on the imperative role of political economy in forging consensus for a paradigm shift in the economic model of Latin America and the Caribbean.