The Impact of Structural Reforms on Poverty and Income Inequality in Latin America

This study investigates empirically the relationship between structural reforms and poverty and inequality in Latin America in the period 1985-2010. The results suggest that structural reforms, in general, have a significant positive effect on poverty. This is mainly caused by financial reforms and privatizations which increase the extent and depth of poverty. Structural reforms, in general, do not have any significant effect on income inequality. This is because different reform areas have different and offsetting distributional effects; financial and labor reforms increase inequality, while tax reforms and privatizations decrease inequality. Focusing on high poverty and high inequality countries only, structural reforms have no significant effect on poverty, but have an effect on the distribution of income. Here, tax reforms in particular seem to decrease inequality. Focusing on low poverty and low inequality countries, structural reforms and, in particular, trade reforms, make the poor poorer. Privatizations in these countries distribute income more equally.