1

Social Spending and Income Redistribution in Argentina

During the 2000s: the Increasing Role of Noncontributory Pensions

Panel LASA- Friday, 10:30am - 12:15pm, LincolnRoom 5

The Impact of Taxes and Social Spending on Inequality andPoverty in Argentina, Brazil, Mexico and Uruguay

Nora LustigTulane UniversityCarola Pessino

Universidad del CEMA

BackgroundCrisis 2001-2002 in Argentina:

default and devaluation Real GDP fell 5% in 2001 and almost

12% in 2002

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GDP Argentina constant prices 1993

Axis

Title

Background

Inequality and Poverty Increased to largest in history, National Poverty Headcount more than 50%

Poverty Rate GBA INDEC (Disposable Income)

May

-88

May

-89

May

-90

May

-91

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-92

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-93

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-94

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-95

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-96

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-01

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-03

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004

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1st 2

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60

FindingsWhat happened to poverty and inequality

after the crisis?We show that from the peak of the crisis it

decreased substantially, but stayed at the level of the 90s, how it was done?

Furthermore, current levels of poverty and inequality rest on fragile stance, fiscally unsustainable and generating perverse incentives towards informality and welfarism.

What happened with Poverty and Inequality after CrisisThe “Observed” Indexes (Disposable Income):National Moderate poverty decreased from

55% to 30% in 2009, those are the “high” levels of the 90s.

International poverty 4US$ and 2.5 US$ PPP also decreased from 38% to 14% and 23% to 5%.

GINI decreased from 0.520 to 0.447

Gini and Poverty 2003-2009

Net Market

Incomea

Disposable Income

Final Income

Net Market Income

Disposable Income

Final Income

Net Market Income

Disposable Income

Final Income

Gini 0.553 0.520 0.435 0.512 0.487 0.399 0.489 0.447 0.366 Headcount index (%) $2.50 PPP/day 28.3% 23.2% -.- 13.5% 9.7% -.- 13.0% 5.5% -.- $4.00 PPP/day 41.5% 38.2% -.- 22.7% 18.8% -.- 21.9% 14.4% -.-

2003 2006 2009

National Poverty Indexes 2003-2009

Net Market

Incomea

Disposable Income

Final Income

Net Market Income

Disposable Income

Final Income

Net Market Income

Disposable Income

Final Income

Official National Extreme 30.6% 25.9% -.- 15.9% 11.8% -.- 9.6% 2.8% -.-Effectiveness Indicator 7.7 13.2 19.1

Official National Moderate 56.5% 54.7% -.- 38.3% 35.5% -.- 22.6% 15.7% -.-Effectiveness Indicator 1.6 3.7 8.2

FIEL National Extreme 30.6% 25.9% -.- 15.9% 11.8% -.- 18.1% 10.6% -.-Effectiveness Indicator 7.7 13.2 11.2

FIEL National Moderate 56.5% 54.7% -.- 38.3% 35.5% -.- 36.1% 30.6% -.-Effectiveness Indicator 1.6 3.7 4.1

2003 2006 2009

Change attributable to “macro” and to “redistribution”

Let and be the market and disposable income Ginis (headcount ratios) in year t, respectively; and, . and be the market and disposable income:

and as the portion attributable to redistribution

–

 

-

Change attributable to “macro” and to “redistribution”

Let and be the market and disposable income Ginis (headcount ratios) in year t, respectively; and, . and be the market and disposable income:

and as the portion attributable to redistribution

–

 

-

But contribution of market and redistribution differsWhen analyzing contribution of market

(before redistribution policies) and redistributive effect:

Between 2003 and 2006 the fall in poverty and inequality mostly explained by market (rebote) and international context.

Between 2006 and 2009, the fall is explained mostly by redistribution, (90% of Extreme Poverty and 40% of GINI coefficient).

Contribution of Redistribution to Change in Disposable Income Inequality and Poverty

2009/ 2003 2006/ 2003 2009/ 2006GiniChange in Net Market Income Gini -0.064 -0.041 -0.023Change in Disposable Income Gini -0.073 -0.033 -0.04Change Attributable to Redistribution -0.009 0.008 -0.017

12.3% -24.2% 42.5%Headcount index (US$2.50 PPP/ day)Change in Net Market Income Poverty -0.153 -0.148 -0.005Change in Disposable Income Poverty -0.177 -0.135 -0.042Change Attributable to Redistribution -0.024 0.013 -0.037

13.6% -9.6% 88.1%

Flagship programsRedistribution occurs principally because of

the moratoria previsional, and other non-contributory pensions, and in second place with the AUH that we simulated in this study.

Program

Concentration coefficient with

respect to benchmark case net mark income

for 2009b

As percent of GDP in 2009

Program Jefes y Jefas de Hogar Desocupados -0.53 0.03%Program Familias/ IDH -0.50 0.05%Unemployment Insurance -0.19 0.08%"Inclusion" Scholarships (Becas) -0.13 0.02%

Asignacion Universal por Hijo Simulated (AUH)c-0.50 0.63%Moratorium/ Non Contrib Pensions -0.27 2.89%Total Contributory Pensions -.- 7.16%Total Direct Transfers -0.31 3.70%Primary Education -0.39 2.22%Secondary Education -0.24 2.02%University Tertiary Education 0.20 1.32%

Other Educationd 0.20 1.12%Total Education Spending -0.20 5.56%Health Primary Attention -0.36 2.57%

PAMI Healthe 0.13 0.90%Total Health Spending (primary and PAMI Health) -0.23 3.47%Seguridad Alimentaria -0.48 0.11%

PAMI- INSSJyP - Social assistancee -0.26 0.20%

Obras sociales - Sociale -0.16 0.13%

Other Social Protection Programse 0.00 0.82%

Water and Sanitatione 0.00 0.44%

Housinge 0.00 0.63%

Other Urban Servicese 0.14 0.96%

Transportation Subsidiese 0.16 2.45%

Energy Subsidiese 0.22 1.86%

Manufacturing and Communications Subsidiese 0.55 0.46%

Agricultural Subsidiese 0.55 0.63%

Airline Subsidiese 0.80 0.20%

CEQ Social Spendingf -0.15 16.74%

Airline SubsidiesManufacturing Subsidies

Agricultural SubsidiesNet Market Income GiniDisposable Income Gini

Final Income* GiniEnergy SubsidiesOther Education

University Tertiary EducationTransportation Subsidies

Other Urban ServicesPAMI Health

Other Social Protection Programs Water and Sanitation

Housing"Inclusion" Scholarships (Becas)

Total CEQ Social SpendingObras sociales - Social

Unemployment InsuranceTotal Education Spending

Total Health SpendingSecondary Education

PAMI- INSSJyP - Social assistanceMoratorium/Non Contrib Pensions

Total Direct TransfersHealth Primary Attention

Primary EducationSeguridad Alimentaria

Asignacion Univ. Hijo Simulated (AUH)Program Familias/IDH

Jefes y Jefas de Hogar Desocupados

-0.80 -0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80 1.00

0.80

0.550.55

0.49

0.450.37

0.22

0.20

0.200.16

0.14

0.130.00

0.00

0.00-0.13

-0.15

-0.16

-0.19-0.20

-0.23

-0.24-0.26

-0.27

-0.31

-0.36-0.39

-0.48

-0.50-0.50

-0.53

Concentration Coefficient (or Gini when specified)

LegendEducation SpendingHealth SpendingTargeted TransferOther Social AssistanceNon-Contributory PensionSubsidyGini

Argentina: Share of Benefits Main Social Programs 1999

    Share of benefits going to each income group      

Net Market Income Groupy<2.52.5 < y < 4 4 < y < 10

10 < y < 50 y > 50 Total

ARGENTINA            

Jefas y Jefes de Hogar 35.0% 18.2% 45.8% 0.9% 0.0% 100.0%

Familias 37.2% 20.2% 37.8% 4.4% 0.3% 100.0%

Unemployment Insurance 22.9% 16.8% 34.2% 24.4% 1.7% 100.0%

Becas 15.4% 14.0% 52.6% 18.1% 0.0% 100.0%

Non Contributory Pensions (inferred) 35.2% 7.4% 37.3% 19.7% 0.3% 100.0%

Food 37.2% 18.6% 38.6% 5.6% 0.0% 100.0%

Asignación Universal Por Hijo (simulated) 36.8% 20.9% 37.0% 5.2% 0.2% 100.0%

At least one of the above (a) 34.6% 12.2% 38.2% 14.7% 0.3% 100.0%

Education: All Except Tertiary 22.5% 15.9% 47.7% 13.8% 0.1% 100.0%

Education: Tertiary 5.0% 4.8% 41.2% 48.3% 0.6% 100.0%

Argentina: Coverage Main Social Programs 2009    Percent of individuals in each income group who are beneficiaries

Net Market Income Groupy<2.52.5 < y < 4

4 < y < 10

10 < y < 50 y > 50

Total Population

ARGENTINA            Jefas y Jefes de Hogar 5.0% 3.8% 2.0% 0.0% 0.0% 1.8%Familias 36.5% 30.1% 11.2% 0.9% 0.8% 12.5%Unemployment Insurance 1.6% 2.2% 0.9% 0.6% 0.8% 1.0%Becas 1.3% 2.1% 1.6% 0.4% 0.0% 1.2%Non Contributory Pensions (inferred) 33.2% 19.2% 17.5% 9.4% 3.4% 16.7%Food 20.8% 15.9% 5.6% 0.7% 0.0% 6.7%

Asignación Universal Por Hijo (simulated) 52.9% 46.6% 20.6% 3.9% 3.7% 21.2%At least one of the above (a) 91.9% 78.8% 47.6% 15.2% 7.9% 44.6%Education: All Except Tertiary 31.1% 31.1% 19.0% 6.6% 1.1% 17.2%Education: Tertiary 1.8% 2.5% 4.6% 6.7% 2.8% 4.8%Health (b) 68.1% 63.9% 34.3% 11.1% 6.1% 33.0%Contributory Pensions 1.0% 3.1% 12.9% 19.9% 17.4% 12.9%Above (all above for benefits except food, at least one for beneficiaries) 90.4% 76.1% 45.7% 14.8% 7.9% 43.2%

BENEFITS PER BENEFICIARY BY DAY PPP 2005

    y < 2.52.5 < y

< 44 < y <

1010 < y <

50 y > 50 Total

Jefas y Jefes de Hogar 0.35 0.34 0.35 0.48 0.00 0.35

Familias   0.54 0.52 0.55 0.97 2.31 0.56Unemployment Insurance 1.36 1.09 1.11 1.52 2.50 1.25

Becas   1.30 1.12 1.17 1.94 0.00 1.27

Non Contributory Pensions (inferred) 3.87 2.06 2.38 2.90 4.19 2.84

Food   0.15 0.14 0.18 0.26 0.00 0.16

Asignación Universal Por Hijo (simulated) 1.22 1.14 0.96 0.88 0.85 1.07Above (all above for benefits, at least one for beneficiaries) 2.26 1.35 1.47 2.20 2.60 1.75

Memo item:TOTAL Pensions 6.8% 6.9% 10.0% 3.2% 23.9% Contributory 6.2% 5.7% 7.2% 1.0% 7.4% Non-Contributory 0.7% 1.2% 2.9% 2.2% 16.6%

2003 2006 2009Change

2009-2003 ( % pts)

Share of the

increase (in %)

Percentage of People 65 and Older Receiving Any Kind of Pensions: 2003, 2006 and 2009

2003 2006 200940.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

MalesFemalesAll

Problems of this redistribution1) Public expenditure increases to more than

40% of GDP financed by distortive taxes, inflation tax and non-orthodox mechanisms.

Part of increase with export taxes, sensitive to commodities 'prices. Part of the increase related to indirect subsidies to firms, difficult to decrease.

ARGENTINA : Government Spending by Category (% of GDP) 2003 2006 2009

Change 2009-2003

( % pts)

Share of the

increase (in %)

Gross Nat Inc/capita (PPP US$) 8,180 11,740 14,230

Total Government Spending 29.5% 32.9% 43.2% 13.7% --

Primary Government Spending 27.1% 30.7% 40.6% 13.5% 100.0%

Social Spending 13.0% 15.4% 20.6% 7.6% 56.1%Social Spending (In Incidence Analysis Benchmark) 7.3% 8.3% 11.8% 4.5% 33.4%

Total Cash Transfers 2.0% 2.0% 3.7% 1.7% 12.6%Cash Transfers (excluding all Pensions) 1.3% 0.7% 0.8% -0.5% -4.0%Non-Contributory Pensions 0.7% 1.2% 2.9% 2.2% 16.6% Moratorium Pensions 0.4% 0.8% 2.4% 2.0% 14.4%

Total In Kind Transfers 5.3% 6.3% 8.1% 2.8% 20.8%Education 3.4% 4.3% 5.6% 2.1% 15.6%Health Primary Care 1.9% 2.0% 2.6% 0.7% 5.2%

Other Social Spending (Not in Incidence Analysis) 5.7% 7.1% 8.8% 3.1% 22.7%Non- Social Spending 7.9% 9.6% 12.8% 4.9% 36.5%

Indirect Subsidies 2.5% 3.8% 5.6% 3.1% 23.3%Other Non Social Spending 5.4% 5.9% 7.2% 1.8% 13.2%

Contributory Pensions (In Sensitivity Analysis) 6.2% 5.7% 7.2% 1.0% 7.4%Debt Servicing 2.4% 2.2% 2.6% 0.2% 1.3%

Financing of Government Spending

Financing of Total Government Spending 29.5% 32.9% 43.2% 13.7% 100.0%Total Government "Actual" and "Creative" Revenues 30.4% 34.5% 41.0% 10.6% 77.3% Total Government Tax Collection 23.4% 27.4% 31.4% 8.0% 58.3%

Total Government "Actual" Non Tax Revenue 6.8% 6.6% 7.6% 0.8% 6.1%

Total Government "Creative" Non Tax Revenue 0.2% 0.5% 2.0% 1.8% 12.9%Official "Creative" Public Sector Borrowing Requirements -0.9% -1.6% 2.2% 3.1% 22.7%"Actual"Public Sector Borrowing Requirements -0.7% -1.1% 4.1% 4.9% 35.7%

2003 2006 2009Change

2009-2003 ( % pts)

Share of the

increase (in %)

Problems of this redistribution2) The redistribution of second part of decade

thanks principally to “moratoria”. It was partially subsidized through

contributory pensions. Disincentives to contribute to social security,

and incentives to informality.

Evolution of Contributory, Noncontributory and Moratorium Pensions 2003-2009: Millions of Individuals

Problems of this redistribution3) As a consequence, the total number of beneficiaries of social programs increase enormously over decade: from about 5% and not more than 10% in the 90sWith crisis, increase to 24% in 2003But with the crisis over, in 2009 43% of

population depended on social transfers, to get poverty levels similar to the 90s.

Beneficiaries of Social Programs

1997 2003 2006 20090%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%