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PolicyResearchWorkingPaper10495

PovertyandInequalityImplicationsofFiscalPolicies

TheCaseofBrazil

GabrielLaraIbarra

MaynorCabrera

OtavioConceição

RicardoCampanteVale

PovertyandEquityGlobalPractice

June2023

ProducedbytheResearchSupportTeam

PolicyResearchWorkingPaper10495

Abstract

arethelargestbeneficiariesofthefiscalsystemandhouse-holdswithchildrenexperienceasmallerdeclineinpovertyfromgovernmenttransferscomparedtothosewithnochil-dren.Attheindividuallevel,thefindingsalsoshowthatchildrenandyoungadolescents(ages0–15)weremadepooreraftertaxesandtransfers,whichsuggeststhatBra-zilianfiscalpoliciesin2019alsoincreasedpovertyratesforsomepopulationgroups.ThesefindingscontributetoprovideacomprehensiveoverviewofthefiscalsysteminBrazilandhavewide-rangingconsequencesfortheformu-lationofpublicpolicies.

ThispaperinvestigatestheimpactsoftheBrazilianfiscal

systemonpovertyandinequality,withafocusonthe

effectsonvulnerablepopulations.Leveragingabroadly

appliedandacceptedmethodologyandseveralhousehold

surveysandadministrativedata,thepapershowsthatBra-

zilianfiscalpoliciesin2019weretypicallypoverty-and

inequality-reducing,butwithalargeheterogeneityinthe

effectivenessoffiscaltools.Thepovertyimpactsoffiscal

policiesincreasedovertimeduetodirecttransfers.Income

inequalityreductionisamongthehighestinacomparable

setofmiddle-incomecountries,yetthepost-fiscalGiniis

stillhighat0.521.Theresultsindicatethatelderlypeople

ThispaperisaproductofthePovertyandEquityGlobalPractice.ItispartofalargereffortbytheWorldBanktoprovideopenaccesstoitsresearchandmakeacontributiontodevelopmentpolicydiscussionsaroundtheworld.PolicyResearchWorkingPapersarealsopostedontheWebat/prwp.Theauthorsmaybecontactedatglaraibarra@.

ThePolicyResearchWorkingPaperSeriesdisseminatesthefindingsofworkinprogresstoencouragetheexchangeofideasaboutdevelopmentissues.Anobjectiveoftheseriesistogetthefindingsoutquickly,evenifthepresentationsarelessthanfullypolished.Thepaperscarrythenamesoftheauthorsandshouldbecitedaccordingly.Thefindings,interpretations,andconclusionsexpressedinthispaperareentirelythoseoftheauthors.TheydonotnecessarilyrepresenttheviewsoftheInternationalBankforReconstructionandDevelopment/WorldBankanditsaffiliatedorganizations,orthoseoftheExecutiveDirectorsoftheWorldBankorthegovernmentstheyrepresent.

PovertyandInequalityImplicationsofFiscalPolicies:TheCaseofBrazil

GabrielLaraIbarra*,MaynorCabrera**,OtavioConceição*,RicardoCampanteVale*

JELcodes:D31,H22,H23,H24,I32,J14,J15

Keywords:fiscalpolicy,fiscalincidence,poverty,incomeinequality,Brazil.

*WorldBank,PovertyandEquityGlobalPractice.**CommitmenttoEquity(CEQ)Institute.WethanktheteamsintheWorldBankthatdevelopedtheoriginaltooltoanalyzetheincidencefiscalpoliciesinBrazilandthatwasusedasthestartingpointfortheupdatedversionthatweusedtoproducetheestimatespresentedinthispaper:StellaCarneiro,FabioCereda,BernardoCoelho,LilianaD.Sousa,MatteoMorgandi,CorneliusFleischhaker,PaulAndresCorralRodas,KarolinaGoraus,andJiaGao.WealsothankClaudineiPereira,SaileshTiwari,ThiagoFalcãoandYeonSooKimfortheirvaluablecomments.Thefindings,interpretations,andconclusionsexpressedinthispaperdonotnecessarilyrepresenttheviewsoftheWorldBankGroupanditsaffiliatedorganizations,orthoseoftheExecutiveDirectorsoftheWorldBankorthegovernmentstheyrepresent.

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1.Introduction

TheCOVID-19pandemiccoupledwiththeinflationaryeffectsofthewarinUkrainehaveputenormouseconomicpressureoncountries,withconsequentialnegativeeffectsontheirpopulations.GlobalGDPdecreasedby3.4%in2020,withdropsvaryingfrom-6.4%inLatinAmericaandtheCaribbean(LAC)to-2%inEuropeandCentralAsia(WorldBank,2022e).Inflationreachedhighlevelsequivalentto3.5%in2021globally,2.6%inEurope,4.7%intheU.S.,and3.9%inLAC.Thecombinationoflowereconomicopportunitieswithhighercostsoflivingisexpectedtohavelargelyaffectedlow-incomeandthemostvulnerablehouseholds,suchaswomenandnon-college-educatedyouth,astheyusedtoworkinsectorsthatwerehitthehardestbyclosures(Agrawaletal.,2021,OECD,2022),anddevotealargershareoftheirresourcestopurchasefood(MacDonaldetal.,1991,Kaufmanetal.,1997).

Countriesacrosstheglobeputinplaceamyriadofemergencymeasuresaimedatshieldingthemostvulnerablehouseholds.Rangingfromcashtransferstoincentivesforfirmstoreducecontractedhoursofemployeesorofferingloanguaranteesanddirectlendingfacilitiestopreservejobs(OECD,2021,Gentilinietal.,2022a),theseprogramsareestimatedtohavecostoverUSD3trillionin2020-2021(Gentilinietal.,2022b).Aseconomieswereslowtorecover,countriesfaceamajorfiscalcrunch,withmorethan80percentoftheemergingmarketsanddevelopingeconomiesprojectedtohavehigherdebt-to-GDPratiosin2022thanin2019(WorldBank,2021a).Atthesametime,povertyratesareexpectedtobeashighasthepre-pandemicperiod(WorldBank,2022d),highlightinglargepotentialscarringeffects–aspovertyislinkedtoreducedintergenerationaleducationalmobility(d'Addio,2007,Blacketal.,2020,RazzuandWambile,2022),andlimitedaccesstobothhigh-qualityjobs(Brummundetal.,2018)andfamilyplanningresources(LeeandMiller,1990,Cavalcantietal.,2021).Thus,continuoussupporttovulnerablepopulationsposesanever-pressingquestionforpolicymakersinthecontextofhistoricallylowfiscal

space.

ThispaperstudiestheBraziliancase.Beingthe12thlargesteconomyoftheworld,Brazilishometoover210million,oraboutathirdofthepopulationinLatinAmerica(WorldBank,2022d).Between2019and2020itsGDPfellby4.6%,anditsGDPpercapitaby4.1%,yetpovertyin2020decreasedduetotheAuxílioEmergencialprogram,whichcostBRL293billion(WorldBank,2022c).Bysomeaccounts,Brazil’sresponsewasoneofthestrongestinLAC(Bussoetal.,2021),andpossiblyoneofthelargestintheworld(WorldBank,2022c).Nevertheless,in2021povertybouncedbackup.TheBraziliangovernmentwillthusneedtosubstantiallyincreasetheefficiencyofitsspendingifitistocontinuehelpingthepoorandvulnerableinafiscallysustainableway.Inthiscontext,thispaperaimstocontributetothedialogueonthepossibleavenuestoachievethisgoalbyanalyzingtheincidenceoffiscalpoliciesinBrazilwithanemphasisontheirimpactsonpovertyandincomeinequalityamongvulnerablepopulations.BoththesystemasawholeandeachfiscalpolicyseparatelyareanalyzedintermsofitscontributiontopovertyandinequalityusingtheCommitmenttoEquity(CEQ)methodology(Lustig,2018).Thestudyfocusesonapre-pandemicyear(2019)tocircumventpotentialdataissuesandrepresentarelativelystablefiscalsituation.

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1Theyears2020or2021witnessedsubstantialchangesinthesocialsafetysysteminBrazil.Thechangeswere,however,temporaryandtheemergencyprogramshavebeenliftedasof2022.Theyear2019isalsopreferredbecausethereweresignificantchangesinthedatacollectionapproachofthenationalhouseholdsurveythatwasusedforthisanalysis.Forashortpresentationofthosechanges,seeLaraIbarraandVale(2022).

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Thispaperinnovatesinafewareas.First,weare,tothebestofourknowledge,thefirstpapertoexploretheimpactsofthefiscalsystemonvulnerablepopulationsbothatthehouseholdandindividuallevelsforthecaseofBrazil.Weconductananalysisoftheimpactsonpovertyandincomeinequalityacrossdemographicgroupsconsideringparticularlythepresenceofchildrenandelderlyinhouseholds’compositions,andalsoattheindividuallevel.Suchcategorizationsareimportantgiventhelong-standingevidenceofhighpovertyratesamongchildrenandlowpovertyratesamongelderlyinBrazil(WorldBank,2018,WorldBank,2022b),andrecentliteraturefindingthathouseholdswithchildrenweremorelikelytohavebeenaffectedbytheCOVID-19-inducedeconomiccrisis(WorldBank,2021b,CBPP,2022).Second,weprovideanupdatetoearlierwork(HigginsandPereira,2014)onfiscalincidenceanalysisforBrazilthatreflectedthecountry’ssituationin2008/2009.Anupdateiswarrantedforseveralreasons.Forinstance,thepersonalincometaxstructurehaschanged.In2008,therewereonlythreetaxbrackets,withdifferenttaxrates:0%,15%and27.5%.Thereisalsonowanadditionalbrackettargetingthosewithlowerincomelevels,whosetaxrateis7.5%,andanotherintermediatebracketbeforethemaximum,at22.5%.Also,in2014amajoreconomiccrisishitBrazilleavingscarringeffectsamonghouseholdsinthebottomofthedistribution(WorldBank2022b).Moreover,thenumberofbeneficiaryfamiliesinthelargestconditionalcashtransferprogram,theBolsaFamília,increasedby26%intheperiod2008-2019,whileresidentpopulationincreasedbyonly10%(Brazil,2022c).Allthesechangesrepresentmajormodificationsinthefiscalincidencelandscape.Third,thepaperincorporatesananalysisofBrazilianindirecttaxesunderthesamecross-countryandtimecomparablemethodology.

OurresultsindicatethattheBrazilianfiscalpoliciesaretypicallypoverty-andinequality-reducing,butwithalargeheterogeneityintheeffectivenessoffiscaltools.Wedocumentthatthefiscalsystemin2019reducesextremepovertyby5.9percentagepoints(p.p.)andmoderatepovertyby0.6percentagepoints.

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Ourresultsalsoindicatethatindirecttaxesareresponsibleforalargeincrease(6.1p.p.)inpoverty,butthepovertyreductioneffectsofruralpensions,BPC,AbonoSalarialandBolsaFamiliamorethancompensatethat.Despitethemodestoverallreductioninmoderatepoverty,weshowasubstantialdeclineinboththepovertygap(4.7p.p.)andthesquaredpovertygap(5.9p.p.)intermsofmoderatepovertywhenweshiftfrommarketincomepluspensions(MIPP)toconsumableincome.Consideringtheextremepovertyline,fiscalpoliciesreducethepovertygapbytwo-thirds(6.9p.p.)andthesquaredpovertygaptoafifthofitsoriginalvalue(a7.1p.p.decrease).Thismeansthateventhoughthefiscalsystemdoesnotreducemuchthemoderatepovertyheadcountratio,itdoesalleviatethesituationofthepoor.Notably,outof40countrieswithpovertyratesavailableintheCEQdatabase,only11werereducingmoderatepovertyfromMIPPtoconsumableincome.

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Wealsoshowthatincomeinequality,measuredbytheGiniindex,isreducedby6.4pointswhenwecomparethepre-fiscalincomeconcept(MIPP)withconsumableincome.Weadditionallyshowthatsuch

2Thethresholdformoderatepovertyishalfofthe2019minimumwage(BRL499),whilethatforextremepovertyistheonethatdefinedeligibilitytotheBolsaFamíliaprogramin2019(BRL178),respectively.Inthesectionreservedforinternationalcomparisons,weuseadifferentpovertylinebecausewewanttoensurethatourresultsarecomparablewithCEQassessmentsforothercountries.

3Forinternationalcomparisons,moderatepovertyismeasuredatUS$5.50perdayin2011purchasingparitypower(2011PPP).WhileherewedefinemoderatepovertyatR$550permonth(equivalenttoUS$7.05perdayin2011PPP),theCEQdatabasedoesnothaveresultsforotherpovertylines.ItisworthnotingthattheWorldBankupdateditspovertylinesto2017PPPandthatthecurrentlinerecommendedtouppermiddle-incomecountriesisUS$6.85perday.ThislastisequivalenttoR$521permonthat2019prices,veryclosetothehalfthenationalminimumwageline(R$550)usedasthemainreferenceinthispaper.

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areductionininequalityisaconsequenceoftheimpositionofdirecttaxesanddirecttransfers,andthattheeffectsofindirecttaxes(fromdisposabletoconsumableincome)appeartobesmall.Consideringin-kindtransfers(duetopubliclyprovidededucationandhealthservices),thereductionintheGiniis15.6points.Importantly,wedocumentthattheinequalityreductionfromMIPPtoconsumableincomeisamongthehighestinaninternationalcomparisonconsideringthecountriesoftheCEQdatabase,onlytrailingbehindSouthAfricaandArgentina.Wealsofindthatinequalityreductionduetofiscalpolicieswashigherin2019thanin2009:6.4versus3.1Ginipoints(comparingMIPPwithconsumableincome).Tobesure,thepost-fiscalGinicoefficientisstillveryhigh(0.521)andamongthetop9inasubsetof52countriesoftheCEQdatabaseandinthetopthirdof18upper-middleincomeeconomies.

Ourresultsalsoindicatethatdirecttransfersandpublicservicestypicallybenefitmostlythepoorest.Wedocumentthathalfofthedirecttransfersgotothefirstincomequintile,whichincludesthepopulationinextremepovertyandpartofthoseinmoderatepoverty.BolsaFamiliaistheprogramwiththehighestprogressivity,followedbyruralpensionsandBenefíciodePrestaçãoContinuada(BPC).TheyrepresentanimportantshareofMIPPforthefirstquintileoftheincomedistributionasmeasuredbythepre-fiscalincome.Theresultsalsosuggestthatthefirstandsecondincomequintilesarenetcashbeneficiariesofthefiscalsystem,whilethethird,fourthandfiftharenetpayers.Whenconsideringthetotalfiscalposition,whichincludestheeducationandhealthin-kindbenefits,theresultsshowthatthefirstthreequintilesarenetreceivers,whilethelasttwoarenetpayersofthefiscalsystem.Atthesametime,wedocumentalargeheterogeneityinthedistributionofgovernmentexpenditures.ThefirstquintileofMIPPincomedistributionreceivesabout70%ofBolsaFamilia’stransfers,55%ofruralpension,45%ofBPCtransfers,andonly1%ofAbonoSalarial.Thisgroupisestimatedtoreceive35%ofexpendituresinprimaryeducationand6%ofexpendituresintertiaryeducation.Incontrast,thefifthquintilereceivescloseto37%ofexpendituresintertiaryeducation.

Whenitcomestoin-kindtransfers,wefindthatmorethan60%ofthepreschoolandprimaryeducationbenefitsarereceivedbythefirsttwoMIPPquintiles.Interestingly,thebenefitsdecreasewithincomeandareverylowfortherichestquintile.SecondaryeducationbenefitsarenotthatmuchconcentratedinthefirstMIPPquintile(27%),butthebenefitsharealsodeclineswithincomeandreaches6%inthefifthquintile.Tertiaryeducationbenefits,inturn,standinstarkcontrast:theshareofbenefitsispositivelycorrelatedwithincome,andabout35%ofthebenefitsgototherichestquintileandlessthan10%tothepoorestone.Wealsodocumentthatthetaxincidenceofprimaryeducationishigherthan100%ofMIPPinthefirstincomequintile,anddecreasessubstantiallyinthesecondquintile(21.1%),reaching0.3%inthelastquintile.Highereducationisalsomoreimportantinthefirstquintilethanfortherichest,withtaxincidencebeingequivalenttoabout31.4%ofMIPPinthefirstquintile,7%inthesecondone,andlessthan1%inthelastone.Preschooleducationincidenceisabout11%inthefirstquintile,decreasingto2.2%inthesecondquintileandlessthan1percentintherestofthedistribution.

Ageandracegroupsareaffecteddifferentiallybyfiscalpolicies.Wefindsuggestiveevidencethattheelderly(thoseaged60ormore)arethelargestbeneficiariesofthefiscalsysteminBrazil.Theelderlyareeligibleforpensionsproviding1minimumwage(BRL999in2019orUSD181)evenwithnotolimitednumberofformallaborcontributionstothepensionsystem.

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Povertyratesamongtheelderlygoesfrom37.6to14.8percentduetofiscalpolicies.Moreover,wedocumentthatfiscalsystemmakeschildrenandyoungadolescents(i.e.,aged0-15)poorer,asthepost-fiscalpovertyrateisgreaterthanthepre-fiscal

4ConsideringanexchangerateofUSD/BRL=5.5.

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povertyratefortheseindividuals.Thisdemonstratesthat,eventhoughthefiscalpoliciesarepoverty-reducingin2019,therearegroupsofindividualswhoareworseoffaftertaxesandtransfers.WealsofindthatthereductioninpovertyduetofiscalpoliciesislargerforhouseholdsheadedbyAfro-Brazilians(-6p.p.)thanwhites(-5.1p.p.).ThisfindingisevenmorerelevantgiventhepreviousevidenceforBrazilthatfiscal-inducedpovertyreductionin2008/2009washigherforwhitesthanAfro-Brazilians(Pereira,2016).Whenwelookattheindividuallevel,wedocumentthatthedifferenceintermsofpre-andpost-fiscalpovertyratesissubstantialbetweenelderlyAfro-Braziliansandwhites:9.3percentagepoints.Conversely,wefindvirtuallynodifferencebetweenAfro-Brazilians(+2.3p.p.)andwhites(+2.7p.p.)whencomparingthepost-andpre-fiscalpovertyratesamongchildrenandyoungadolescents.

Thispapercontributestotheliteratureonfiscalincidenceanalysesthathavebeenextensivelyappliedtoavarietyofcountriesandcontexts(Lustig,2018,Cuestaetal.,2012,HigginsandPereira,2014,Buchelietal.,2018,Greenspunetal.,2019,LaraIbarraetal.,2019,Meija-Mantillaetal.,2019,Pabónetal.,2021).Theavailableempiricalevidencesuggeststhatfiscalpoliciesacrosstheglobeareoftenpoverty-andinequality-reducing,andthatreductionsaretypicallymorepronouncedwhenin-kindtransfersareconsidered.Sometimes,however,theeffectsofthefiscalsystemcanbedetrimental.InZambiaandUganda,forinstance,thepovertyheadcountratioincreasesby2.3p.p.whenconsideringthepost-fiscalincome(DelaFuenteetal.,2017,Meija-Mantillaetal.,2019).Eventhoughdirecttransferswerefoundtobepro-poorinsuchcountries,theyarenotlargeenoughtocounteractthepurchasingpowerdeclinescausedbyindirecttaxes.Similarly,neitherthepresenceofelderlyinthehouseholdstructureisawarrantyofpovertydeclinenorthepresenceofchildrenimpliesinincreasesinthelikelihoodofpoverty,asdemonstratedinthecaseofArmenia(TarlovskyandIcaza,2022).Thesameisalsotruewhenitcomestotheabilityoffiscalsystemstomitigateexistentgapsacrossgender,racialandothergroupsinacountry’spopulation.Therefore,updatedfiscalanalysesarefundamentaltodesigningwell-informedpolicyactions,asgovernmentsseektobeaseffectiveandefficientaspossibletoprotectthemostvulnerablepopulations.

TheresultsinthispaperareconsistentandcomplementarytoarecentstudyonfiscalincidenceanalysisforthecaseofBrazil.Inarecentstudy,SilveiraandPalomo(2023)usethelatestnationalhouseholdbudgetsurvey(PesquisadeOrçamentoFamiliar,POF2017-2018)andfindthatdirectcashtransferandin-kindtransfersarethemainpovertyandinequalityreducingmechanismsoftheBrazilianfiscalsystem.Usingself-reporteddatainthesurvey,theauthorsdocumenttheregressivecharacterofthepublicservants’pensionssystem(RegimePrópriodePrevidênciaSocial,RPPS)andregressiveimpactsofindirecttaxes.DifferentlyfromSilveiraandPalomo(2023),ourpapermodelsandsimulatesdirecttaxesandcontributionsinsteadofusingsurveyresponses.Byconsideringdifferentelementslikejobstatusandfamilycomposition,ourestimatesaimtoaddmoreconsistencybetweenthereportedincomeandthedirecttaxesassessment.Wealsomodelruralpensionsasaseparatecashtransferandcontributorypensionsaretreatedasdeferredincome,whiletheirtreatmentofgovernmenttransfersisestimatedasanalternativescenario.Anadvantageofourstudyisitscross-countrycomparabilitytothelargebodyofworkbasedonacomparablemethodology.However,wearenotabletoseparatebetweenthepensionssystemforprivate-sectorworkers,theRegimeGeraldaPrevidênciaSocial(RGPS),andthepensionssystemforpublicservants,theRPPS(fordetailsonthepensionsystem,seePaiva(2016)).

Theremainderofthispaperisorganizedasfollows.Section2showsthedetailsofthemethodologyandpresentsthedatasources.Section3presentsthemainresults,whileSection4showsthefiscalincidence

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analysisfocusedonthedemographicgroupsofinterest.Section5discussesinternationalcomparisons.Section6concludes.

2.Methodology

2.1CEQmethodology

ThefiscalincidenceanalysisforBrazil2019followstheCommitmenttoEquity(CEQ)methodologydevelopedbyLustig(2018).Themethodologyestimatesincomeconceptsthatassesshowthefiscalsystemandspecificinterventionsaffectpovertyandinequality(see

Figure1

).Weapplythisapproachtoanswerthefollowingquestions:Howmuchdoesthefiscalsystemcontributetochangingmarketincomeinequality?Doesithelpreducepoverty?Whichtaxesandtransfersareprogressiveorpro-poor?What

wouldbethedistributionalimpactsofspecificfiscalinterventions?

Inthisanalysis,thefollowingincomeconceptsapply:

Marketincomeincludeslaborincome(grossemployeecashornearcashincome,grossnon-cashemployeeincome,andemployers’socialinsurancecontributions),incomefromcapitalassets(rentofpropertyorland,interest,dividends,andprofits),andprivatetransfers(pensionsfromprivatepensionsplans,andnetregularinter-householdcashtransfers),thevalueofgoodsproducedforownconsumptionandtheimputedvalueofowner-occupieddwellingsandotherincomesources.

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Marketincomepluspensions(MIPP)isthesumofmarketincome,contributoryold-agepensionsminuscontributionstoold-agepensions(INSS,CotaPatronal,andFGTS).Thisisconsideredthe“pre-fiscal”incomeofhouseholds,asitrepresentsabenchmarktowhichwecomparehouseholds’situationbeforeanyinteractionswiththecountry’sfiscalpolicies,i.e.,beforeanytaxesarepaid,beforeanycontributionsaremadeoranytransfersarereceived.

Disposableincomeisconstructedbyaddingdirecttransfersandsubtractingdirecttaxesandsocialcontributionsnotdirectedtoold-agepensionsfrommarketincomepluspensions.Brazil’sdirecttaxesincludepersonalandpropertytaxes(IPTUandITR).DirecttransfersincludeAbonoSalarial,BolsaFamília,BenefíciodePrestaçãoContinuada,AbonoSalarial,SalárioFamília,RuralPensions,UnemploymentBenefits,andothergovernmentcashtransfers(seealsosection3.3).

Consumableincomesubtractsindirecttaxesfromdisposableincome.

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Finalincomeaddstoconsumableincomebenefitsthroughsocialspendingonhealthandeducation.

Assomuchdependsonthedesignandfunctionsofthepensionsystemineachcountry,thereneedstobeaconsensusintheliteratureonhowtotreatcontributorypensionsandrelatedcontributions.Thereareusuallytwoscenarios.OneoptiontakesPensionasDeferredIncome(PDI).UnderPDI,old-agepensionincomeistreatedasdeferredincomeandthereforeaddedtomarketincome,andpensioncontributionsaretreatedassavings.AsecondoptionisthePensionsasGovernmentTransfersscenario(PGT),inwhich

5TheapproachestoevaluateownconsumptionandimputedrentaredescribedinSection3.3.

6Whenavailable,thisincomeconceptaddsamonetaryvalueofindirectsubsidies.Thisstudydoesnotincludeanyindirectsubsidies.

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pensionincomeistreatedasgovernmenttransfersandpensioncontributionsastaxesandthussubtractedfrommarketincomeinlinewiththestandardEUmeasurementofdisposableincome.ThisstudyfollowstherecommendedguidelinesbyLustig(2018)andestimatesthetwoscenarios,butthePDIoneisusedasthemainspecification.DespitedeficitsinsomeBrazilianpublicprovisionalplans,contributionstopensionsstillrepresentasignificantformofforcedsavings.Currently,transfersfromtheCentralGovernmenttofundthepensionsystemarerelativelylowcomparedtosocialsecuritycontributions.Accordingtoourestimates,socialcontributionsrevenuewas11.6percentofGDPin2019,andtheFederalCourtofAccountsofBrazilestimatedadeficitof4.2%ofGDPconsideringallprovisionalsystems.

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Thismeansthat26.6%ofthepensionsarepaidbygovernmenttransfers,whichisanon-negligibleshare,muchclosertoafullycontributorythanafullygovernment-subsidizedregime.Therefore,wearguethatthePDIapproachisabetterfitfortheBrazilianpensionsystemin2019.Notwithstanding,wealsopresenttheresultsrelativetothePGTapproachintheAppendix,andtheyarequalitativelysimilar.Inthisdirection,SilveiraandPalomo(2023)demonstratethatthepensionsysteminBrazilissuchthattwo-thirdsofthepensionsaregiventobeneficiariesofRGPSandone-thirdtothoseofRPPS.Theauthorsalsoshowthatthepensionsystemforprivate-sectorworkersisslightlyprogressiveorneutral,whilethatofpublicservantsisregressive.

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Asaconsequence,wearguethatourresultscanbeunderstoodasrepresentingtheneteffectoftheoverallpensionsysteminBrazil.

Tounpackthedistributionalimpactsofthefiscalsystem,thefollowingstandard

indicatorsare

used:

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Concentrationcoefficient:Thecoefficientofconcentration(aquasi-Gini)isanindexsummarizingtheconcentrationcurveofatax(typicallybetween0and1)ortransfers(whichrangesfrom-1to1).Thecurvesfromwhichthemeasureisderivedcoverthecumulativepercentageofhouseholds,frompoortorich,rankedbyMIPP,onthehorizontalaxisandthecumulativepercentageoftaxpaidortransfersreceivedbyeachcentile,ontheverticalaxis.Theconcentrationcoefficientequalstheintegralofthecumulativeproportionofpeopleinacentileminusthe