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Chile’s School System Feeds Income Inequality
April 22, 2014 | Contribution by SERGIO URZÚA

Sergio Urzúa is an Assistant Professor in the Department of Economics at University of Maryland
 
In the 1980s, Chile's educational system underwent a major overhaul that included decentralizing administrative powers and the creation of a nationwide voucher system to promote competition. The result was three types of schools: (i) public (funded by student subsidy, administered by municipality), (ii) private voucher (funded by student subsidy and in some cases with a co-payment, administered by private sector), and (iii) private-fee-paying (funded and administered by private sector). How is this set-up working in an economy that has grown rapidly but continues to have a high level of income equality? A new study by Dante Contreras (University of Chile), Jorge Rodríguez (University of Chicago), and Sergio Urzúa (University of Maryland) – which for the first time links data on individual’s schooling achievement and adult labor market performance — suggests that the three-tiered school system, along with two major educational reforms introduced in 1996 to improve the quality of education, aren't helping to reduce income equality.
 
Colegio Municipal Marcela Paz, La Florida, Santiago de Chile
Colegio Municipal Marcela Paz, Santiago, Chile. Photo credit: Flickr @UNESCO/Carolina Jerez
  
Urzúa tells the JKP that over time there's been a sharp shift in the public-private balance. Just 10 years ago, 53 percent of students attended public schools, 39 percent voucher schools, and 8 percent private schools. But now, more students are enrolling in voucher schools than public schools, drawn by the hopes of better educational outcomes and eventually better labor market outcomes. In fact, the study shows that attending a private-voucher school during high school instead of a public one is associated with an increase of 2 to 4 percent in adult earnings, while attending a private-fee-paying high school instead of a public one is associated with a 15 percent increase in earnings. He cautions that these findings underscore the need for beefing up the quality of public schools to reduce inequality, which will entail enabling them to better compete with the voucher schools.
 

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The Inequality Battle in Latin America – Part 2
April 14, 2014 | Contribution by FRANCOIS BOURGUIGNON

Francois Bourguignon is a Professor of Economics (and former Director) at the Paris School of Economics and the former World Bank Chief Economist and Senior Vice-President from 2003-2007.

For Francois Bourguignon — Professor of Economics (and former Director) at the Paris School of Economics and World Bank Chief Economist and Senior Vice-President from 2003-2007 — the fascination with how to reduce poverty and inequality continues unabated. Already the recipient of many honors in economics, in fall 2013 he received LACEA's Juan Luis Londoño Prize for high quality and policy relevant research on socioeconomic issues relevant to Latin America — which still is the most unequal region in the world.


Railroad slums, Buenos Aires.
Photo credit: Flickr @jazpdx (https://www.flickr.com/photos/jazpdx/)


In Part 2 of this series, Bourguignon tells the JKP that there are a number of steps that Latin America could take to ensure that the region becomes more egalitarian. First, policy makers need a decent income tax system — with greater progressivity and a higher income tax, which is typically quite low — and to ensure that people can't evade the tax. This will help bring in more revenue from the rich, although at this point the region lacks good data on the income of the top 1 percent, which he considers a major problem. Second, armed with more receipts from a much more progressive income tax, policy makers could help those at the bottom of the income distribution by boosting educational opportunities (including at the preschool level) and improving access to healthcare and finance.​

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The Inequality Battle in Latin America – Part 1
April 10, 2014 | Contribution by FRANCOIS BOURGUIGNON

Francois Bourguignon is a Professor at the Paris School of Economics


Delivery of Bolsa Família in Teresina, Brazil.
Photo credit: Flickr @glaubercavalcante (https://www.flickr.com/photos/glaubercavalcante/)

For Francois Bourguignon — Professor of Economics (and former Director) at the Paris School of Economics and World Bank Chief Economist and Senior Vice-President from 2003-2007 — the fascination with how to reduce poverty and inequality continues unabated. Already the recipient of many honors in economics, in fall 2013 he received LACEA’s Juan Luis Londoño Prize for high quality and policy relevant research on socioeconomic issues relevant to Latin America — which still is the most unequal region in the world.

In Part 1 of this series, Bourguignon tells the JKP that "the big evolution" in the field of inequality over the past 30 years has been the shift from focusing on income (a result of economic activity) to "opportunities" (determinants of economic activity). However, unlike income inequality, which can be summarized in a single figure (the Gini coefficient), the degree of inequality of opportunities — that is, differences in the capacity and capabilities of the people — is not only impossible to summarize in a single figure but also tough to measure, and thus a major area of research now. He also notes that in the past decade, Latin America's inequality has diminished in part thanks to successful programs like Opportunidades in Mexico and Bolsa Familia in Brazil, which provide cash transfers to the poor conditional on parents pursuing better education and healthcare outcomes for their kids. (Part 2 of this series explores possible policy steps to continue reducing inequality, especially on the tax front.)


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Growth, the Rich, and the Really Rich – Part 2
April 07, 2014 | Contribution by GERARDO ESQUIVEL

Gerardo Esquivel is a Professor of Economics at El Colegio de Mexico

While economic growth and the poor — do rising tides raise all boats? — has long been a major concern of economists, few have worried about growth and the rich. Yet there is an increasing concern, especially in industrial countries, about rising inequality within societies. Witness the numerous social movements in recent years, like Occupy Wall Street, which called attention to the fate of the "bottom 99 percent" versus the top 1 percent. A new paper, "Growth is (really) good for the (really) rich" — by Emmanuel Chavez (Economic Analyst, Mexico's Ministry of Finance and Public Credit) and Raymundo M. Campos-Vazguez and Gerardo Esquivel (Professors of Economics, El Colegio de Mexico) — tries to help inform the debate by asking how overall economic growth affects the "rich" (top 10 percent) and the "very rich" (top 1 percent, 0.1 percent, and 0.01 percent). It looks at 26 developed countries and emerging economies from 1980 to 2011, drawing on the World Top Incomes database.

Occupy Wall Street: The emphatic 99%
Occupy Wall Street, October 9, 2011.
Photo credit: Flickr @Kimberlyki (https://www.flickr.com/photos/29795482@N06/)



In Part 2 of this series, Esquivel tells the JKP that two key policy implications stand out. First, policy makers might want to adopt a more progressive tax system by varying tax rates among the top 10 percent and taxing different sources of income more equally (capital gains typically fall into a lower tax bracket). However, the challenge here, he stresses, is to avoid increasing taxes so much that they actually introduce large distortions that would impede investment and job creation. Second, if policy makers wish to create a more egalitarian society, then they could use the additional revenues to help those at the bottom part of the income distribution.

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Growth, the Rich, and the Really Rich
April 03, 2014 | Contribution by GERARDO ESQUIVEL

Gerardo Esquivel is a Professor of Economics at Colegio de Mexico
 
While economic growth and the poor — do rising tides raise all boats? — has long been a major concern of economists, few have worried about growth and the rich. Yet there is an increasing concern, especially in industrial countries, about rising inequality within societies. Witness the numerous social movements in recent years, like Occupy Wall Street, which called attention to the fate of the "bottom 99 percent" versus the top 1 percent. A new paper, "Growth is (really) good for the (really) rich" — by Emmanuel Chavez (Economic Analyst, Mexico's Ministry of Finance and Public Credit) and Raymundo M. Campos-Vazguez and Gerardo Esquivel (Professors of Economics, El Colegio de Mexico) — tries to help inform the debate by asking how overall economic growth affects the "rich" (top 10 percent) and the "very rich" (top 1 percent, 0.1 percent, and 0.01 percent). It looks at 26 developed countries and emerging economies from 1980 to 2011, drawing on the World Top Incomes database.

 

Riocinha Favela - Rio de Janeiro Brazil
Riocinha Favela, Rio de Janeiro, Brazil.
Flickr @David Berkowitz (https://www.flickr.com/photos/davidberkowitz/)
 

In Part 1 of this series, Esquivel tells the JKP that the study finds that economic growth is good for the rich in the sense that the mean income of the top 10 percent grows in the same proportion as that of the whole population. However, it also shows that the "very rich" get even progressively bigger gains from growth. He says that many people have long assumed that the top 1 percent was reaping far more benefits than others from growth, but now we have empirical proof across countries over a long period of time. (Part 2 will look at the study's policy implications.)

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Chile’s School System Feeds Income Inequality
The Inequality Battle in Latin America – Part 2
The Inequality Battle in Latin America – Part 1
Growth, the Rich, and the Really Rich – Part 2
Growth, the Rich, and the Really Rich