Cash transfer policies, taxation and the fall in inequality in Brazil an integrated microsimulation-CGE analysis

Abstract

Persistent and very high-income inequality is a well-known feature of the Brazilian economy. However, from 2001 to 2014, the Gini index registered an unprecedented fall of 13.5% percent, combined with significant poverty reduction. Previous studies using partial equilibrium analysis have pointed out the important role of federal government transfer programs in this inequality reduction, particularly in the first period (2001-2005) when the new trend started. The aim of this research is to evaluate the efficiency of the two most important cash transfer programs, 'Bolsa Família (PBF)' and 'Benefício de Prestação Continuada (BPC)', in achieving their purpose of alleviating poverty and reducing inequality in Brazil's income distribution. The simulation results, using an integrated modeling approach, confirm the importance of these programs in reducing inequality from 2003 to 2005. However, the effect on poverty alleviation was not strong. Finally, the methodological approach reveals some important mechanisms that were not present in previous analyses, such as the role of the tax structure that finances these policies.