Seminario Permanente de Investigación

"Fiscal Redistribution, Sustainability, and Demography in Latin America", a cargo de José María Fanelli (UdeSA - CONICET)

Fiscal Redistribution, Sustainability, and Demography in Latin America
con Ramiro Albrieu

Abstract: .When discussing fiscal redistributions, that is, changes in income distribution caused by taxes and expenditures, policy makers tend to focus on two main factors: redistribution effects considering a cross-section of the current population and the short-run impact on the public budget. In contrast, the intertemporal implications have not been systematically evaluated. In this paper we highlight two key dimensions of the intertemporal analysis of redistributive fiscal policies: debt sustainability and demographic-driven pressures on the fiscal budget. We identified some stylized facts that matter in designing fiscal and distribution policies. First, the notion of structure of fiscal redistribution can be fruitfully used as a pivot to articulate the fiscal items of the budget that impinge on income distribution. Second, the way in which a given fiscal adjustment is implemented matters to income distribution. As a general rule, the downward adjustment of expenditures is regressive, although the importance of the impact varies from one economy to another. Third, the Demographic Window of Opportunity (DWO) is the key stage of the demographic transition regarding fiscal space. For younger countries it matters because they are entering the DWO and for the older ones because they have to prepare to abandon it and enter the aging stage. The exercises suggest that the DWO will create the fiscal space required to implement progressive policies in younger countries while the opposite will occur in the countries that will age. The simulations indicated that the demographic transition-driven effects on the items of fiscal redistributions are potentially very large and have substantial consequences for income distribution.