Social protection systems,
redistribution and growthin Latin America
José Antonio Ocampo and Natalie Gómez-Arteaga

Abstract
After reviewing the debate over the relative merits of universalism and targetingin social policy, this paper assesses the present state of and challenges to social
protection systems in Latin America. It shows that these systems expanded broadly
but unevenly across the region during the decade from 2003 to 2013. In particular,
there are still large inequalities in access to social protection by type of employment
and household income. Contributory coverage is low, and while the coverage of
non-contributory assistance has increased, benefits are generally small. The impact
of social spending in the form of direct transfers is still low by comparison with
developed countries. The paper also shows that the expansion of social protection
systems has contributed more than GDP growth to poverty reduction.

Keywords
Social policy, social security, equality, income distribution, public expenditures,
poverty mitigation, economic growth, measurement, Latin America
JEL classification
I3, H22, H23
Authors
José Antonio Ocampo is a professor at Columbia University and was formerly
United Nations Under-Secretary-General for Economic and Social Affairs, Executive
Secretary of the United Nations Economic Commission for Latin America and the
Caribbean (ECLAC) and Minister of Finance, Minister of Agriculture and Director of
the National Planning Department of Colombia. ocampo.joseantonio@yahoo.com
Natalie Gómez-Arteaga is a staff member with the National Planning Department ofColombia and was formerly a research associate at the Initiative for Policy Dialogue
at Columbia University and a consultant to the International Labour Organization andthe United Nations Development Programme. natalie.gomezarteaga@gmail.com

8

CEPAL Review N° 122 • August 2017I.

Introduction1

Latin America saw significant improvements in its social indicators over the decade from 2003 to
2013, including reductions in income inequality in most countries of the region that contrasted sharply
with a global trend towards rising inequality in both developed and developing countries. These
improvements were matched by a fair economic performance, particularly in 2003-2008, although witha slowdown in 2008-2013. Improvements in income distribution together with reasonable economic
growth resulted in a massive reduction in poverty, the fastest since the 1970s. Besides favourable
external conditions (high commodity prices and ample access to external financing), improvements
during this “golden social decade” can be attributed to the construction of innovative programmes andstronger welfare States. New forms of social protection have been emerging in the region, including
the universal or broad-based pensions of Brazil, Chile and the Plurinational State of Bolivia, theuniversal health systems of Brazil and Colombia, increasingly attractive cash transfer programmes,
and universal transfers such as child benefits in Argentina. Contributory social security has expanded
in Ecuador and Uruguay, among other countries of the region, and pension privatizations have been
reversed in Argentina and the Plurinational State of Bolivia. These advances have also been matchedby progress in other dimensions, such as significant wage growth and rapidly expanding access to
education, albeit with significant quality gaps.
With the recent improvements and innovations in its social protection systems, andnotwithstanding the diversity that characterizes the region, Latin America can be said to have been
gradually moving away from the old focus on targeted State subsidies and towards the conceptions
on which the welfare State was built in industrial countries, with the emphasis on universalism andsolidarity in social policies based on the principle of social citizenship. Indeed, the expansion of social
protection systems in Latin America contrasts heavily with recent experiences in the rest of the world,and particularly in advanced economies, where reforms since the mid-1990s have lessened thegenerosity of social benefits and reduced the progressivity of income tax systems, making fiscal policy
less redistributive (Bastagli, Coady and Gupta, 2012). Retrenchment in several high- and middleincome countries has led to reforms to their social protection systems in which the more costly
universal programmes have been scaled back while more targeted and means-tested programmeswith more limited benefits have been expanded. In this context, assessing the positive effects thatthe recent expansion of social protection systems has had in reducing poverty and inequality in Latin
America and the way this has tied in with economic development is essential for the formulation ofpolicy recommendations, not only in Latin America but in other middle-income and less developed
countries that are building their own welfare States.
This paper reviews the targeting versus universalism debate and assesses recent improvements
in 18 Latin American countries on three dimensions of social protection with a view to measuring
universality, solidarity and public spending. Between 2002 and 2012, 15 of the 18 Latin Americancountries improved their scores on the Social Protection Index developed for this paper, indicating thatthey experienced variable mixes of higher coverage in health care and pensions, smaller coverage gaps
between wage earners and non-wage earners, higher social spending and better social assistancecoverage in the poorest quintile. However, there are still major inequalities by both type of employment
and income level. Non-wage workers are in all cases less likely to be affiliated to health and pension
systems, and pension coverage is still highly deficient in terms both of levels of pension scheme
membership among the working population and of pension coverage in old age.

1

The authors wish to thank Isabel Ortiz and Christina Behrendt of the International Labour Organization for their contributions toand comments on this paper and Maria José Abud for her outstanding research support.

Social protection systems, redistribution and growth in Latin America

CEPAL Review N° 122 • August 20179

The impact of social spending on poverty and inequality has been significant. Indirect transfers
have had a greater redistributive effect than direct transfers, an indication of the fact that targeted
direct transfers, although highly progressive, have low benefits and coverage. Latin America achieves
less fiscal redistribution than developed countries because of its relatively unprogressive mix of taxes
and transfers and limited benefits.
At a time when economic growth has slowed, some countries are in recession and the immediate
outlook is weak, particularly in South America, continuing to expand and strengthen a welfare State with
universal benefits would appear to be an essential strategy. This is supported by evidence that there
is no trade-off between redistribution and growth. In fact, Latin America countries with greater social
protection and higher social spending have grown particularly strongly. However, better protection
implies a need to design fiscal systems that generate higher and more progressive taxes.
This paper is divided into six sections aside from this introduction. Section II reviews theuniversalism versus targeting debate in Latin American social policy from a broad historical perspective.
Section III details improvements in social protection systems during the last decade, using a
multidimensional index to measure their comprehensiveness and universality. Section IV analyses thepresent state of social protection systems and shows the persistence of segmentation in access tohealth care and pensions. Section V assesses their impact on poverty and inequality. Section VI shows
the linkages between expanded social protection, economic growth and poverty reduction. Lastly,
section VII concludes with some general recommendations.

II. Universalism versus targeting in social policy
Modern conceptions of social policy have their roots in the liberal view that the provision of basic
education and health services is inseparable from the progress of modern societies. Beginning in thelate nineteenth century, the creation of modern social security systems under the leadership of Bismarck
and pressure from the labour and socialist movements led to the development of more comprehensive
views of social policy. The development of the welfare State in the major industrial economies fromthe 1930s onward was a result of this process and of competition with communism in the post-war
years. A major corollary of this development was unprecedented growth in the size of the State.
In Latin America, the same views were in evidence but the effects were more limited. The reforms
introduced in Uruguay in the 1910s by President Batlle y Ordóñez are perhaps the earliest manifestationsof this trend. However, more comprehensive approaches to the welfare State were developed in just a
few countries, three in the Southern Cone (Argentina, Chile and Uruguay) and Costa Rica,2 and eventhese never developed welfare States on the scale of the industrial countries, particularly in termsof the design of comprehensive tax and transfer systems to reduce income inequality. In most Latin
American countries, the coverage even of basic educational and health services was low up to the
mid-twentieth century, and social security came late and was very restricted in scope, owing to its
association with formal employment and its corporatist overtones. The result was a segmented andincomplete welfare State which spread its benefits to some middle sectors of society but tended tomarginalize the poor, particularly in rural areas (Bértola and Ocampo, 2012, chaps. I and IV).
The market reforms of the 1980s and 1990s relegated social policy to a subordinate status.3
The new social policy thinking that spread throughout Latin America from the 1980s onward is best2

Cuba since its 1958 revolution belongs in this list, but the country has been left out of this paper because of its entirely different
economic, social and political system.

3

This is reflected, for example, in the absence of any mention of social policy in the 10 principles of the Washington Consensus,
as summarized by Williamson (1990), except as a public spending priority.

José Antonio Ocampo and Natalie Gómez-Arteaga

10 CEPAL Review N° 122 • August 2017

summarized in three social policy reform instruments that the World Bank placed at the centre of
its agenda for the region: targeting, demand subsidies to facilitate a system with private sector
participation, and decentralization. The first of these sought to make social policy consistent withlimited fiscal resources while aiding the poor. The other two instruments focused on the need torationalize the State apparatus. They were supplemented by a proliferation of specific projects aimed
at managing the social costs of structural reform, the most important of which were perhaps the social
emergency funds.
The new principles were applied unevenly across the region. Targeting was deployed tobest effect in conditional cash transfer programmes, which were developed first as an emergency
mechanism (Solidaridad in Mexico) or as an instrument to secure fuller take-up of basic educational
services (Bolsa Escola in Brazil) but evolved over time into systems with wider coverage whose
eventual aim was to reach the entire target population. Renamed Propsera and Bolsa Família, they
were copied by other countries and have spearheaded what Ferreira and Robalino (2011) have called
the “social assistance revolution”.
The result of the reforms has been that current systems of social policy in Latin America
combine three different models, sometimes in the same country. The first is the strictly universal
system, essentially run by the public sector with differing degrees of decentralization, that continues
to characterize education systems —where it is accompanied by variable levels of private provision,
particularly in the university system. The second is the segmented and corporatist system inheritedfrom the past that continues to prevail in several countries’ social security arrangements (health care,
pensions and occupational risks). The third is strict targeting, developed to best effect in conditionaltransfer programmes. Filgueira and others (2006, p. 37) have characterized the resulting systems ofsocial policies as “persistent corporativism mixed with liberal reforms”. These systems lack a pillar ofclearly designed entitlements and, most importantly, also lack the coherence and appeal of the oldconceptions of the welfare State and thus the capacity to serve as core instruments of social cohesion.
The return of universalism as a social policy paradigm is closely tied to the concepts of social
rights and social citizenship. Internationally, this vision was reflected in the rise of the welfare State andthe development of the economic, social and cultural rights summarized in articles 22 to 27 of the
Universal Declaration of Human Rights and later in the International Covenant on Economic, Social
and Cultural Rights, and in similar instruments adopted by the Organization of American States. This
new set of rights expresses modern notions of equality, solidarity and non-discrimination that go backto T.H. Marshall’s concept of social citizenship (see Marshall, 1992, which reproduces his original 1950
essay). Furthermore, as stated in the preamble to the United Nations Charter, these rights should beconceived as manifesting the determination of United Nations Member States to “promote social
progress and better standards of life in larger freedom”, a concept that of course goes back to Franklin
D. Roosevelt’s “freedom from want” and that has most recently been conveyed by Amartya Sen’s“development as freedom” (Sen, 1999). In Latin America, this view has also been expounded in the
United Nations Development Programme’s conception of democracy as an extension of the three
dimensions of citizenship (civil, political and social) (UNDP, 2004; see also Ocampo, 2007) and inrecent ECLAC institutional documents on equality, and particularly the organization’s call for compacts
for equality (ECLAC, 2014a).
The most precise formulation of this conception for Latin America is the chapter on the principles
of social policy in the ECLAC report Equity, Development and Citizenship (ECLAC, 2000). The four
principles are universalism, solidarity, efficiency and integrality. The first expresses the view that theentitlements associated with social policy are more than services or commodities: they are rights
and should therefore be guaranteed to all citizens. The second alludes to something that is obvious,
particularly in highly unequal societies: that the guarantee of access to these entitlements for the poor
should be based on the principle of solidarity, which furthermore expresses the basic objective ofSocial protection systems, redistribution and growth in Latin America

CEPAL Review N° 122 • August 2017 11

building more inclusive societies. The third indicates that the resources available to society for its social
welfare programmes should be optimally used, and the last is a reference to the fact that poverty andinequality have many dimensions, and that these should be tackled simultaneously.
Regarding social protection, in 2008 the International Labour Conference adopted the landmark
International Labour Organization Declaration on Social Justice for a Fair Globalization. The Declaration
institutionalized the concept of “decent work”, developed by the International Labour Organization(ILO) since 1999 to promote a fair globalization. The concept embodies an integrated approach thatrecognizes employment, social dialogue, rights at work and social protection as strategic objectives,with the last including “the extension of social security to all” (ILO, 2008, pp. 9-10). As a follow-up
to the Declaration, at the hundred and first International Labour Conference in 2012, 184 members
unanimously adopted Recommendation No. 202, which provides guidance to members on establishingand maintaining social protection floors as a core element of their national social security systems,
guaranteeing universal access to essential health care and a basic income over the life cycle for all(ILO, 2012).
As will be seen in the next section, Latin American countries have made significant progressover the last decade towards more universal and comprehensive social protection systems based on
the concepts of social citizenship and decent work.

III. A multidimensional index for measuringsocial protection systems in Latin America
The Social Protection Index used in this paper employs the nine indicators shown in diagram 1 tomeasure the achievements of 18 Latin American countries in three dimensions of social protection
systems: universality, solidarity and social spending.4
Diagram 1
A Social Protection Index for Latin America

Universality
Health cover for
wage earners
Pension systemmembership among
wage earners

Solidarity

Social spending

Proportion of poor
people with access tosome type of social
protection (insuranceor assistance)

Social spending
on social protection(insurance andassistance) asa share of GDP

Older population
who receive acontributory pension
Health coverage gap
between wage earners
and non-wage earners

Coverage in poorest
quintile (all social
assistance)

Social spendingon health as a shareof GDP

Pension systemmembership gap
between wage earners
and non-wage earners

Source: Prepared by the authors.

4

The dimensions in the index are meant to reflect the principles of a robust welfare State. Although efficiency and integrality
could not be approximated, public spending on social protection systems is used as a proxy for these criteria (see below).

José Antonio Ocampo and Natalie Gómez-Arteaga

12 CEPAL Review N° 122 • August 2017

The first dimension, universality, measures the coverage of health-care and pension systemsof both types (insurance and assistance) among the working population, and the share of the older
population who receive a pension. In view of the historical segmentation of social protection systems
in Latin America, a result of their link with formal employment,5 this dimension includes two indicatorsthat measure the coverage gap between wage workers and non-wage workers6 for both health andpensions. The data come from the Social Panorama of Latin America 2013 (ECLAC, 2014b), which
had a particular focus on access to health care and pensions in the region.
Although universal coverage should of course apply to other areas of social protection
systems and social security more broadly,7 all that is available for most countries at two points in time(around 2002 and around 2012) are data on membership of health-care and pension systems among
the working-age population (active labour force), differentiated between wage and non-wage earners,
and the share of the older population who receive a contributory pension. Protection for persons withdisabilities and work-related risks cannot be measured with the available data, and other programmessuch as unemployment benefits are so deficient in the region that only a few countries have them,generally with very low coverage, as they are invariably based on social insurance.8
The second dimension, solidarity, is approximated by two indicators, one that estimates theaccess of the poorest households to some form of protection and one that measures the efficiency
of social assistance at targeting the poor.9 The first is the percentage of multidimensionally poor
households that have some kind of social protection, defined as having at least one member withaccess to health insurance, contributing to any form of social insurance or receiving a pension orretirement income. This indicator is one of the dimensions of the new multidimensional poverty index
for Latin America proposed by the Oxford Poverty and Human Development Initiative (OPHI) andincluded in the Social Panorama of Latin America 2013 (ECLAC, 2014b). Coverage of all social
assistance programmes in the poorest quintile of the population measures the targeting efficiency ofsocial assistance, on the basis of World Bank data.
The last dimension measures public sector social spending on both health care and social
protection (insurance and assistance) as a percentage of GDP. Cross-country evidence suggests thatthe larger the social budget, the greater the benefits in terms of poverty and inequality reduction. The
size of the budget also reflects the social contract and type of institutions in a given country and theuniversality of the system. “The hypothesis here is that the size of the budget available for redistribution
is not fixed and that the institutional structures of welfare States are likely to affect the definitions ofidentity and interest among citizens. Thus, an institutional welfare State model based on a universalistic
strategy with higher budget intended to maintain normal or accustomed standards of living is likely
to result in greater redistribution than a marginal one based on targeting” (Korpi and Palme, 1998,
p. 663). Although the index may have some limitations and missing variables, as will be seen in thefollowing sections, it is a very useful measure for the purposes of this study and an interesting proxyfor measuring changes in social protection systems.
5

See Barrientos (2011) and Kaplan and Levy (2014).

6

Non-wage workers include employers, own-account workers, members of producers’ cooperatives and unpaid family workers.
Because of large information gaps, the coverage indicators measure only wage workers. This indicator and those for coverage
gaps between groups approximate the extent to which social protection systems meet the objective of universality.

7

According to ILO, social protection floors include access to essential health care, including maternity care; basic income
security for children, providing access to nutrition, education, care and any other necessary goods and services; basic income
security for persons in active age who are unable to earn sufficient income, in particular in cases of sickness, unemployment,maternity and disability; and basic income security for older persons. Broader social security encompasses eight areas:
sickness benefits, unemployment benefits, old-age benefits, employment injury benefits, family and child benefits, maternity
benefits, invalidity and disability benefits and survivors’ benefits.

8

According to ILO data on social protection, the contributory unemployment schemes of Chile and Uruguay have the highest
coverage in Latin America and the Caribbean, reaching 27% and 29% of the population, respectively.

9Social assistance consists of all benefits targeted at vulnerable groups in the population, especially poor households. Most
social assistance schemes are means-tested.

Social protection systems, redistribution and growth in Latin America

CEPAL Review N° 122 • August 2017 13

Normalized indices were constructed for each of the nine indicators using the maximum(goalpost) and minimum achievements of the pool of countries. 100% coverage was used as the
maximum (goalpost) for the coverage indicators, and 0% for the gap indicators. The final index isa summary measure, obtained from the arithmetic mean of the normalized indices of each of thenine indicators (this is a simple average, with all indicators having equal weight).10 It ranges from0 to 1, where 1 represents the most comprehensive system with closest to universal coverage, theleast inequality by type of employment in terms of access to health and pension systems, high social
inclusion, well-targeted social assistance and high social spending. Annex A1 gives descriptions andsources for each indicator.
The final Social Protection Index scores for both 2002 and 2012 can be seen in figure 1. On thebasis of the 2012 index score, the countries were divided into three groups by the comprehensivenessand universality of their social protection systems: (i) Uruguay, Chile, Costa Rica, Argentina andBrazil, with the highest scores, can be identified as having comprehensive systems; (ii) the Bolivarian
Republic of Venezuela, Colombia, Peru, Mexico, Ecuador, the Dominican Republic and Panama
have intermediate systems; (iii) El Salvador, Paraguay, the Plurinational State of Bolivia, Nicaragua,
Guatemala and Honduras have relatively limited social protection systems. This classification isconsistent with different rankings in this area, all concluding that the countries in the Southern Cone,
with their higher development, have built more comprehensive welfare States. Costa Rica, for its part,has always stood out as having a fairly universal welfare State despite its much lower GDP per capita(Cecchini and Martínez, 2012).
Figure 1
Latin America (selected countries): Social Protection Index scores, around 2002 and 2012
0.9

Comprehensive social
protection systems
Intermediate social
protection systems

0.8
Social protection index

0.7

Limited social
protection systems

0.6
0.5
0.4
0.3
0.2
0.1

2002

Honduras

GuatemalaNicaragua

Bolivia(Plur. State of)Paraguay

El Salvador

PanamaEcuador

Dominican
Rep.

MexicoPeru

Colombia

BrazilVenezuela(Bol. Rep. of)Argentina

Costa Rica

Chile

Uruguay0

2012

Source: Prepared by the authors, on the basis of data from Economic Commission for Latin America and the Caribbean(ECLAC), Social Panorama of Latin America 2013 (LC/G.2580), Santiago, 2014; Social Panorama of Latin America
2014 (LC/G.2635-P), Santiago, 2014; M.E. Santos and others, “A multidimensional poverty index for Latin America”,
OPHI Working Paper, No. 79, University of Oxford, 2015; and the World Bank. “Around 2012” includes years from2010 to 2013.
Note: The Social Protection Index is the arithmetic mean of the normalized scores of each of the countries on the 9 indicators
used to rank them.

10 The arithmetic mean only includes indicators without missing information. Of the 18 countries, 9 have complete information

for all 9 indicators (Argentina, Chile, Colombia, Ecuador, El Salvador, Paraguay, Peru, the Plurinational State of Bolivia and
Uruguay), 1 has information for 5 indicators (the Bolivarian Republic of Venezuela) and the rest have information for 7 indicators.

José Antonio Ocampo and Natalie Gómez-Arteaga

14 CEPAL Review N° 122 • August 2017

Between 2002 and 2012, 15 of the 18 countries with data available improved their Social
Protection Index scores, meaning they made significant improvements on at least one of the social
protection dimensions, moving towards a more universal and comprehensive system. In contrast,
three did not experience any change in the indicator.
Countries with intermediate social protection systems improved the most (in terms of absolutechanges in the index). Colombia had the strongest improvement in its Social Protection Index score,followed by Peru, the Dominican Republic and a country with a limited social protection system,
the Plurinational State of Bolivia. In the case of Colombia, the improvement followed efforts toachieve universal health coverage by using a subsidized insurance scheme to reach the poor andself-employed.11 Colombia significantly increased health coverage for both wage and non-wage
workers, while reducing the membership gap between the two. Whereas 53% of wage workers hadaccess to health coverage in 2002, by 2012 the proportion was 91%, and the increase in coverageamong non-wage workers meant that the coverage gap between the two types of employment
narrowed from 75 percentage points in 2002 to 5 points in 2012. Peru, the country with the secondlargest improvement in the index, also achieved substantial improvements in access to health careand pensions, with both indicators almost doubling between 2002 and 2012. Furthermore, social
assistance coverage in the poorest quintile increased from less than 10% to 70%.
The Plurinational State of Bolivia significantly improved access to pensions among the older
population, raising coverage from 13% to 21%. Although this is still comparatively low, the country
achieved near-universal coverage among older people (aged 65 and over) with its non-contributory
pensions (see section IV). Of the countries with comprehensive systems, Argentina made the greatest
improvement, driven mainly by an expansion of pension coverage with the introduction of a mandatory
minimum basic pension for all, irrespective of whether beneficiaries had reached the minimum
contribution threshold.12
Table 1 shows the average scores on the nine indicators in the index by social protection
category for 2012. Unsurprisingly, countries with more comprehensive social protection systems scorebetter on average on eight of the nine indicators. For example, while an average of 82% of the older
population in countries with comprehensive social protection systems have access to a pension andthus income security in old age, only 28% and 15% of this population have such security in countries
with intermediate and limited social protection systems, respectively. The coverage gap between
countries with comprehensive systems and countries with limited systems is large when measured
by the coverage of old-age pensions and the percentage of poor households with some kind ofprotection. The percentage of people aged 65 and older who receive a pension is five times as highin countries with comprehensive systems as in those with limited systems. Similarly, the percentage
of poor households with some kind of social protection is three times as great in countries withcomprehensive systems as in those with limited systems.
Social assistance coverage in the poorest quintile is the only indicator for which there is no clear
difference between categories; indeed, countries with intermediate social protection systems seemto have better targeting efficiency, with higher coverage among the population in the first quintile.
Given the scale of some social assistance programmes in the region, mainly conditional cash transfer
programmes, it is not surprising that the countries all have similar levels of coverage. Indeed, since
low-income countries rely more on means-tested programmes because of their low spending levels
and deficient health and pension coverage, it is possible that they might have higher coverage than
11 See the case study on universal health coverage in Colombia conducted for the World Bank by Montenegro, Torres andAcevedo (2013).
12 See Lustig and Pessino (2013). A pension moratorium introduced in 2004-2005 allowed workers of retirement age to receive apension regardless of whether they had completed the required 30 years of social security contributions in formal employment.

Social protection systems, redistribution and growth in Latin America

CEPAL Review N° 122 • August 2017 15

comprehensive social protection systems (Ferreira and Robalino, 2011). In recent years, furthermore,countries like Mexico, Colombia and Peru have continued to improve their targeting mechanisms toreach the poorest households and expand their conditional cash transfer programmes (for Colombia,
see Angulo and Gómez, 2015).
Table 1
Latin America (selected countries):a average social protection indicators by category, 2012
Socialprotection
systemcoverage

Poor
Contributory
PensionHealthCoveragehouseholds inpensionWage
Wage
coveragecoverage withpoorestaccesscoverageearners inearners gap between gap between to somequintile(ages 65
pensionin healthwage andwage and(all socialsocialand above) system (%) system (%) non-wage
non-wageassistance)
protection(%)
workers
workers(%)(%)

Socialspending
on socialprotection(% of GDP)

Socialspending
on health(% of GDP)

Comprehensive

81.8

77.1

90.0

-52%

-12%

92.8

65.0

9.9

5.1

Intermediate

28.4

58.3

75.1

-70%

-42%

71.3

68.6

3.7

2.1

Limited

15.3

37.6

41.9

-96%

-79%

44.9

63.3

3.3

2.7

Source: Prepared by the authors, on the basis of data from Economic Commission for Latin America and the Caribbean (ECLAC),
Social Panorama of Latin America 2013 (LC/G.2580), Santiago, 2014; Social Panorama of Latin America 2014
(LC/G.2635-P), Santiago, 2014; M.E. Santos and others, “A multidimensional poverty index for Latin America”, OPHI
Working Paper, No. 79, University of Oxford, 2015; and the World Bank.
aArgentina, Bolivarian Republic of Venezuela, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador,
Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Plurinational State of Bolivia and Uruguay.

The recent improvements in Social Protection Index scores have been due to efforts to develop
more universal social protection systems, with specific policies to bring in the traditionally excluded
poor and informal population. As will be seen, however, social protection system access and benefits
are still highly segmented by type of employment and income level.

IV. Social protection systems in the region are
still segmented, although less than formerly
There have been significant improvements in access to health care and pensions13 across the region
thanks to recent innovations with flexible contribution mechanisms, basic pensions as in Argentina,
non-contributory pensions as in Chile and the Plurinational State of Bolivia, and universal healthcoverage with a large solidarity component as in Colombia, among others.
Access to pensions and health care increased throughout the region for both wage and nonwage workers and at all income levels between 2002 and 2012. Thanks to efforts to achieve universal
health care and to solve the problem of limited coverage when this is linked to formal employment,
health-care coverage has improved most among non-wage earners and for the lower quintiles of theincome distribution (see figure 2).

13 Access to health care and pensions is a measure of the working-age population (aged 15 and over) that is covered bysome kind of health insurance (however financed) and by some pension scheme (public or private). Pension coverage is alsomeasured by the percentage of older people receiving this benefit.

José Antonio Ocampo and Natalie Gómez-Arteaga

16 CEPAL Review N° 122 • August 2017

Figure 2
Latin America (selected countries): a health and pension system membership by typeof employment, around 2002 and 2012
(Percentages)

Wage earners

Non-wage earners
80

28

24

28
9

12
4

Total

Q1

Q2

Q3

Q4

Q5

Total
2002

HealthPensions

HealthPensions

HealthPensions

HealthPensions

HealthPensions

HealthPensions

HealthPensions

HealthPensions

2 3

Q1

6

6

Q2

29

26

23

26
21

14
10

10

Q3

Q4

Health39

39

39

Pensions

24
17

28

50

Health

38 37

49 48

41

40

Pensions

44

48
42

41

Health46

60 58

Pensions

53

Health

61

55 54

73 71
65

Pensions

70

66

Q5

2012

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Social Panorama of Latin America 2013
(LC/G.2580), Santiago, 2014.
aArgentina, Bolivarian Republic of Venezuela, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador,
Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Plurinational State of Bolivia and Uruguay.

The percentage of non-wage workers with access to health care almost doubled over a decade,while pension coverage increased by only 3 percentage points. Interestingly, access to health insurance
is always more prevalent than pension system membership regardless of type of employment orincome quintile, reflecting the greater redistributive impact of health care than of transfers, as will beshown in section V.
The innovations recently introduced to do away with segmentation or “truncation” in accessto protection by type of employment are a clear sign of the paradigm shift towards universalism thathas overtaken the region in recent years. At the end of the twentieth century, when it became clearthat the problem of limited coverage (confined to those in formal employment covered by contributory
schemes) was not going to resolve itself as countries developed,14 a wave of innovative mechanisms
designed to provide some form of basic protection for all, and especially self-employed workers,
spread throughout the region. In addition to the example of Colombia’s subsidized insurance scheme
already mentioned, in 2001 Uruguay implemented a monotax system to improve coverage of selfemployed workers by unifying different social security contributions and taxes into a single payment
under a simplified procedure and granting people covered by the monotax the same social security
benefits as wage workers, on the basis of a solidarity principle (ILO, 2014b). Argentina did somethingsimilar by subsidizing social security contributions for self-employed workers and microenterprises,
while in Brazil a simplified taxation scheme designed for micro and small business known as SIMPLES
has significantly reduced employee social security costs for microenterprises.
Despite the improvements since 2002, however, there is still great segmentation in access tosocial protection by type of employment and income, especially for pensions, as figure 2 also shows.
While 66% and 55% and of wage workers are members of a health-care scheme and a pension fund,respectively, only 41% and 12%, respectively, of non-wage workers are. In 2012, less than 5% of non14 With economic growth, the informal sector was expected to gradually disappear as workers moved from more traditional(mainly informal) to more modern (formal) sectors. See Kaplan and Levy (2014).

Social protection systems, redistribution and growth in Latin America

CEPAL Review N° 122 • August 2017 17

wage workers in the bottom quintile were in pension schemes, as compared to 24% of wage workers
in the same quintile. Even in the higher quintiles, non-wage workers have less access to both pensions
and health care.
Poor households are also less likely to be covered by both types of protection. This is true in all
countries, even those with comprehensive systems, although there the coverage gaps affecting thatgroup are less marked. Interestingly, the health-care coverage gap by type of employment is larger inthe second-poorest quintile than in the poorest one. This may partly reflect the success of conditional
cash transfer programmes targeted at the poorest population in creating access to universal basic
services, leaving people just above the threshold without these benefits, so that the coverage gap in
the middle of the distribution is higher.
Protection for older people has also increased in recent years. According to household survey
data, however, the improvement has been greatest among the wealthier population. While 59% of older
people in the top income quintile had access to a pension (whether contributory or non-contributory) in
2012, only 21% of those in the bottom quintile did. It is not only the coverage of old-age pensions thatis unequal, but also their amounts. As figure 3 shows, they are significantly higher in the top quintile
even than in the fourth quintile.
Figure 3
Latin America: pension coverage and average monthly pension amounts for the population
aged 65 and over, by income quintile, around 2002 and 2012
(Dollars at constant 2005 prices and percentages)

400

60
Coverage (percentages)

350
50

300

40

250

30

200
150

20

100
10
0

Amount (dollars in consant 2005 prices)

450

70

50
1

2

3
Income quintile

Coverage in 2002 (left scale)
Amount in 2002 (right scale)

4

5

0

Coverage in 2012 (left scale)
Amount in 2012 (right scale)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Social Panorama of Latin America 2013
(LC/G.2580), Santiago, 2014; and Inclusive Social Development: The Next Generation of Policies for Overcoming
Poverty and Reducing Inequality in Latin America and the Caribbean (LC/L.4056/Rev.1), Santiago, 2016.

Given the low coverage of contributory old-age pensions, new non-contributory pension
schemes have been emerging in the region, led by Brazil, Chile and, with coverage of 95%, thePlurinational State of Bolivia. In other countries such as Mexico and Panama, non-contributory pensions
exist but only as means-tested subsidies that reach less than 30% of the population, although this is
still a higher proportion than in 2002 (ECLAC, 2016).
Efforts to expand social protection have come with higher social spending, as this rose byalmost 5 percentage points of GDP between 1990 and 2013; 70% of this increase, which was driven
mainly by health and social security (insurance and assistance), came between 2002 and 2013 (seefigure 4). However, while Latin America ranks second in the emerging and developing world for social

José Antonio Ocampo and Natalie Gómez-Arteaga

18 CEPAL Review N° 122 • August 2017

spending as a share of GDP, it allocates far fewer resources to this than developed countries, whether
in the form of direct transfers (including social insurance and assistance, non-contributory pensions
and other transfers such as child benefits) or of health and education provision (see figure 5).
Figure 4
Latin America: magnitude and composition of public sector social spending(Population-weighted averages as percentages of GDP)

0.6

1.0

0.8

7.9

8.0

3.8

4.0

0.8

0.7

6.6

5.5

6.2

3.5

2.9

3.0

3.7

4.0

4.2

5.0

4.9

1990-1991

1996-1997

2002-2003

2008-20092012-2013

Weighted averages
Education

HealthSocial protection

Housing

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Social Panorama of Latin America 2013
(LC/G.2580), Santiago, 2014.

Figure 5
Selected world regions: public sector social spending(Percentages of GDP)
30

25

20

15

10

5

0

Advanced
economies

Emerging
EuropeEducation

Latin America

Middle Eastand North Africa

HealthAsia andthe Pacific

Sub-SaharanAfricaDirect transfers

Source: F. Bastagli, D. Coady and S. Gupta, “Income inequality and fiscal policy”, IMF Staff Discussion Note (SDN/12/08),
Washington, D.C., International Monetary Fund (IMF).

When health and pension system membership is reviewed across the three categories of social
protection systems (figure 6), two conclusions emerge. First, countries with comprehensive systems
have higher average coverage without major segmentation by income quintile or type of employment

Social protection systems, redistribution and growth in Latin America

CEPAL Review N° 122 • August 2017 19

where access to health care is concerned, although gaps remain when it comes to pensions. Second,differences in coverage between the three categories of social protection systems are larger for nonwage workers. In countries with limited systems, the majority of the non-wage working population is
excluded from social protection, and social security is only available to the small proportion of workers
with formal employment, in contrast to countries with intermediate and comprehensive systems,
which have made progress in this regard. For example, whereas 80% and 46% of non-wage workers
in countries with comprehensive and intermediate systems, respectively, have access to health-caresystems, only 10% do in countries with limited systems. This gap is much larger than the gap for wage
workers across all types of social protection systems.
Figure 6
Latin America (selected countries): average health and pension system membership by social
protection category, total and bottom two quintiles, around 2012
(Percentages)

Wage workers
100
90
80
70
60
50
40
30
20
10
0

Pensions Health
Quintile I

Pensions Health
Quintile II

Non-wage workers

Pensions Health
Total
Comprehensive

90
80
70
60
50
40
30
20
10
0

Pensions
HealthQuintile I

Intermediate

Pensions
HealthQuintile II

Pensions
HealthTotal

LimitedSource: Prepared by the authors, on the basis of Economic Commission for Latin America and the Caribbean (ECLAC), Social
Panorama of Latin America 2013 (LC/G.2580), Santiago, 2014.
Note: The countries with comprehensive systems included in these estimates are Argentina, Chile, Costa Rica and Uruguay,
those with intermediate systems are Colombia, the Dominican Republic, Ecuador, Mexico, Panama and Peru, and thosewith limited systems are El Salvador, Guatemala, Honduras, Nicaragua, Paraguay and the Plurinational State of Bolivia.

In any event, there is still much to be done. Although targeted programmes have successfully
brought down poverty, they have been less effective than universal benefits at reducing income
inequality (see section V below). The next step has to go beyond narrow targeting mechanisms towards
more universal social protection systems, including an expansion of social insurance as countries
develop. A universal social protection system that covers people against all types of risks is necessary
not only for continuing poverty reduction, but also to increase the resilience of the population above
the poverty line, including the middle class (López-Calva and Ortiz-Juárez, 2014; Ferreira and others,2013), and construct social citizenship. Without universal protection mechanisms, previous gains
could be reversed. This implies, of course, that more resources are needed for social spending.

V.

The redistributive effectivenessof public spending

The redistributive effect of public spending varies with the characteristics of social protection systems.
Higher social spending, universal coverage and progressive transfers are associated with a higher
redistributive impact.

José Antonio Ocampo and Natalie Gómez-Arteaga

20 CEPAL Review N° 122 • August 2017

Using the national studies of the 11 countries covered by the Commitment to Equity (CEQ)
Project of Tulane University and Inter-American Dialogue15 for which information was available when
this study was written, it can be estimated that, on average, countries with comprehensive social
protection systems for which information is available reduce inequality by 0.021 points of the Gini
coefficient through direct transfers and by 0.085 through in-kind transfers. Intermediate systems do soby 0.010 and 0.037 points, respectively, while in countries with limited systems, direct transfers havealmost no impact on inequality (0.006) and in-kind transfers have only a very small redistributive effect(0.030) (figure 7).
Figure 7
Latin America (selected countries): redistributive effects of direct social spending
and in-kind transfers(Absolute changes in Gini coefficient)
-0.14
-0.12
-0.10
-0.08

-0.08
-0.09

-0.06

-0.10
-0.06

-0.04
-0.02

-0.05
-0.04
-0.02

0

Argentina(2009)

Brazil(2009)-0.01
Costa Rica
(2010)-0.02
Uruguay(2009)

-0.05

-0.04

-0.02

-0.03
-0.01
Mexico(2010)

Comprehensive social
protection systems-0.02
Ecuador(2011-12)

0.00
Peru
(2009)

Intermediate social
protection systems
Direct transfers

-0.03

-0.02

-0.01

-0.01
-0.01
0.00
Bolivia El Salvador Paraguay Guatemala(Plur. State (2010)(2010)(2010)of) (2009)
Limited social
protection systems

In-kind transfers

Source: Commitment to Equity (CEQ) Project, on the basis of M. Cabrera, N. Lustig and H.E. Morán, “Fiscal policy, inequality, andthe ethnic divide in Guatemala”, World Development, vol. 76, Amsterdam, Elsevier, 2015; N. Lustig and others, “The
impact of taxes and social spending on inequality and poverty in Argentina, Bolivia, Brazil, Mexico and Peru: a synthesisof results”, CEQ Working Paper, No. 3, CEQ Institute, 2012; N. Lustig, C. Pessino and J. Scott, “The impact of taxes
and social spending on inequality and poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: an overview”, CEQ
Working Paper, No. 13, CEQ Institute, 2013; J. Sauma and D. Trejos, “Gasto público social, impuestos, redistribucióndel ingreso y pobreza en Costa Rica”, CEQ Working Paper, No. 18, CEQ Institute, 2014; M. Beneke, N. Lustig and J.A.
Oliva, “El impacto de los impuestos y el gasto social en la desigualdad y la pobreza en El Salvador”, CEQ Working Paper,
No. 26, CEQ Institute, 2015; and F. Llerena and others, “Social spending, taxes and income redistribution in Ecuador”,
CEQ Working Paper, No. 28, CEQ Institute, 2015.
Note: In-kind transfers include education and health services, while direct transfers include all monetary transfers such as
conditional cash transfers, subsidies and non-contributory pensions. The difference between the Gini coefficients for net
market income (which is market income, including contributory pensions, less personal income tax and employee social
security contributions) and disposable income (which is net market income plus direct public transfers) is the redistributive
effect of direct transfers. The difference between net market income and final income (defined as disposable income plus
in-kind transfers minus co-payments and user fees, including pensions) is the outcome of all direct and in-kind transfers.
See Lustig and Higgins (2013) for a detailed explanation of the methodology.

15 The Commitment to Equity (CEQ) Assessment uses standard incidence analysis to assess how much redistribution and poverty

reduction are being accomplished in each country through social spending, subsidies and taxes and how progressive revenue
collection and government spending are. The incidence analysis measures Gini coefficient and poverty indicator changes
between different income concepts (before taxes and transfers, after direct taxes, and after direct and in-kind transfers). All
CEQ Project working papers are listed in the reference section.

Social protection systems, redistribution and growth in Latin America

CEPAL Review N° 122 • August 2017 21Interestingly, regardless of the type of social protection system, the redistributive effect of inkind transfers is higher than the effect of direct transfers, reflecting higher budgetary allocations totransfers of this type and, in most cases, their higher coverage. In all countries, the budget allocatedto health and education (in-kind transfers) as a percentage of GDP is more than twice that allocated todirect transfers (conditional cash transfers, subsidies and non-contributory pensions), and in several
countries much more. The budget for in-kind transfers varies from just under twice the budget for
direct transfers in Paraguay (3.5% versus 6.7% of GDP) to 14 times in Peru (0.4% versus 5.9% ofGDP). Direct transfers tend to have a larger poverty reduction impact in countries with comprehensivesocial protection systems. For example, direct transfers reduce the headcount ratio by 7.5 percentage
points in Argentina, 3.1 percentage point in Ecuador and less than 1 percentage point in Paraguay.
Most differences in the effectiveness of social protection systems can be explained by differencesin coverage rates, social spending as a share of the total and the progressivity of transfers. As figure
8 shows, there is a clear relationship between the budgetary allocation for social transfers and theirredistributive impact in the countries for which CEQ has published data. The higher the share ofresources allocated to social transfers, the larger the impact on income distribution. Indeed, the largest
redistributive impact is found in the four countries with comprehensive social protection systems.16
Figure 8
Latin America (selected countries): redistributive impact of direct social spending
and in-kind transfers, around 2010
0

Redistributive impact (percentages)

-5

0

5

10

15

20

25

El Salvador
Guatemala

Peru

-10
MexicoParaguay

Ecuador

Bolivia(Plur. State of)-15
Uruguay-20

Brazil-25-30

Costa Rica
Argentina

Social spending (percentages of GDP)

Source: Prepared by the authors, on the basis of country studies by the Commitment to Equity (CEQ) Project.
Note: The redistributive impact is calculated by deducting the Gini coefficient for final income from the Gini coefficient for net
market income and expressing the result as a percentage of the latter, to account for differences in initial inequality.

The progressivity of transfers, which measures the percentage of benefits going to the poorest
households, also reflects the differences between the redistributive impact of direct and in-kind transfers.
Figure 9 shows the concentration (quasi-Gini) coefficients17 for the different types of social spending.
While all direct and in-kind transfers are progressive in countries with comprehensive systems (except
direct transfers in Brazil, where they are neutral), only direct cash transfers are progressive in countries
with limited systems. In the latter, the progressivity of direct transfers is due to conditional cash transfer
16 This relationship also holds for coverage. Ocampo (2008) shows that the higher a country scores on the Human Development

Index (excluding per capita income), the larger the redistributive effect of transfers on income; i.e., the more universal a social
protection system’s coverage, the more redistributive it is.
17 The quasi-Gini coefficient of social spending ranges between -1 (perfect targeting of spending on the poor) and 1, with zero

representing a situation in which spending is equally distributed among all social groups.

José Antonio Ocampo and Natalie Gómez-Arteaga

22 CEPAL Review N° 122 • August 2017

programmes, which on average account for more than 70% of direct transfers (Higgins and others,
2013a). In-kind transfers in these countries are regressive because of their lower coverage, as shownfor example by the Social Protection Index for health.
Figure 9
Latin America (10 countries): concentration coefficients of different types of expenditure
0.3
0.2

Limited social protection systems

Intermediate social
protection systems
Comprehensive social
protection systems

0.1
0
-0.1
-0.2
-0.3
-0.4
-0.5
-0.6
Argentina(2009)

Uruguay(2009)

Brazil(2009)

Ecuador(2011)

Direct transfers

Mexico(2010)

Peru(2009)

Education

Bolivia Guatemala Paraguay El Salvador(Plur. State (2010)(2010)(2011)of) (2009)

HealthSocial spending

Source: Commitment to Equity (CEQ) Project, on the basis of country studies.
Note: The concentration coefficient measures how progressive or regressive any transfer is. A value below -0.4 means thata transfer is absolutely progressive (more concentrated on the lower quintiles), a value between -0.1 and -0.4 that it ismoderately progressive and a value between -0.1 and 0.1 that it is neutral (evenly distributed between income deciles).
Lastly, a transfer with a value above 0.1 is regressive. Direct transfers include non-contributory pensions, conditional
cash transfers and other direct transfers.

Indeed, direct transfers are more progressive than in-kind transfers in all countries expect Brazil.
This is largely due to conditional cash transfer programmes, which aim at poverty reduction and so
are targeted at low-income families, and to non-contributory pensions in the countries where they
exist. Progressive as they are, though, direct transfers have a smaller overall redistributive impact thanin-kind transfers, as figure 7 showed, because of their lower budgets and coverage.
In-kind transfers (education and health provision) achieve the highest redistributive impact when
they are universal, like primary education and, in most countries, health services (the exceptions aremainly countries with limited systems, where they are still tied to formal employment). Basic education
is highly progressive in all cases and is also the most universal in-kind transfer, accounting for a highshare of social spending, a combination that results in a very large redistributive impact. Health is also
highly progressive in countries with comprehensive systems, as coverage is universal.
The high redistributive impact of social policy in countries with comprehensive systems
is achieved through a combination of high social spending, universal coverage and progressive
benefits. Conversely, countries with limited systems budget less for both direct and in-kind transfers,
and although direct transfers are highly progressive, in-kind transfers (especially health) have limited
coverage and are consequently regressive, so that the end result is a low redistributive impact.

Social protection systems, redistribution and growth in Latin America

CEPAL Review N° 122 • August 2017 23

In any event, the total effect of fiscal policy in the region, including transfers and taxes, is still
very small by comparison with more developed countries. While both Organization for Economic
Cooperation and Development (OECD) countries and 15 older members of the European Union
have an average market income distribution (before taxes and transfers) close to the average for
Latin America, they are significantly more effective at reducing the inequality this represents, with theGini coefficient decreasing by 36% or 17 percentage points in OECD (19 percentage points in the
15 European Union countries) as a result of fiscal policy, while the average reduction in Latin America
is only 6% (OECD, 2011; IMF, 2015; Hanni, Martner and Podestá, 2015).18 In addition, and contrary
to recent findings by Ostry, Berg and Tsangarides (2014), it is unclear that more unequal countries
redistribute more in Latin America, as is the case with OECD countries. Uruguay for example, hasrelatively low market income inequality and is the country that redistributes the most.
Furthermore, although fiscal spending is progressive and has a large and increasing redistributive
impact, taxation across the region is still mildly progressive at best and is actually regressive in somecountries, as it relies heavily on revenue from value added tax (VAT) and sales taxes and relatively little
on personal income taxes.19 In fact, according to a recent study, the fiscal mix in the region is suchthat a substantial proportion of the poor may be made poorer (or the non-poor made poor) by the
tax and transfer system (Higgins and Lustig, 2015; Lustig and Martínez-Aguilar, 2016). Accordingly,
fiscal reform to expand income tax and make taxation more progressive is key to redistribution andthe efficiency of fiscal policy.

VI. Myths about the links between
economic growth and redistribution
Although national social protection systems around the world have achieved major reductions inpoverty and inequality (ILO, 2014a), doubts are often raised as to whether these results are obtainedby incurring high opportunity costs in terms of economic growth. There is commonly assumed to bea trade-off between growth and redistribution. However, this trade-off is largely a myth. More broadly,
following Cichon and Scholz (2009), there may be said to be three major myths about the relationshipbetween social protection and economic performance, namely:20(i)

At each stage of development, societies can only afford a certain level of social expenditure (theaffordability myth);(ii)

There is a trade-off between social expenditure (redistribution) and economic growth (Okun’s
trade-off).

(iii)

Economic growth will automatically reduce poverty (trickle-down myth).

Going by the recent experience of Latin America, it is possible to refute these myths. First, social
protection systems in the region are highly heterogeneous even when per capita GDP differences aretaken into account. Second, there is no clear evidence that countries which have expanded their social
protection systems have grown by less. Third, there is a stronger correlation between improvements in
the Social Protection Index and poverty reduction than between growth and poverty reduction.

18 See also Goñi, López and Servén (2011) and Lustig, Pessino and Scott (2013).
19 See the Woodrow Wilson International Center for Scholars project on taxation and equality in Latin America [online] https://www.wilsoncenter.org/publication/taxation-and-equality-latin-america.
20 See Cichon and Scholz (2009) for a review of these myths in the context of the OECD countries.

José Antonio Ocampo and Natalie Gómez-Arteaga

24 CEPAL Review N° 122 • August 2017

Although there is a positive association between higher GDP per capita and a higher Social
Protection Index score,21 there is great variation in Social Protection Index values by per capita GDP
level (figure 10). The most revealing comparisons are between Costa Rica and Panama and between
Uruguay and Mexico. Costa Rica, with per capita GDP hardly above the regional average, has thesecond-highest Social Protection Index score. Since 1941, the country has treated universal coverageof both health and pension provision as an essential pillar of the welfare State, and has always hadoutstanding social inclusion indicators despite its relatively low GDP per capita. As against this,Panama has higher GDP per capita but relatively low social spending and ranks low on the Social
Protection Index. The same is found when Uruguay and Mexico are compared. Although Mexico has
the region’s second-highest GDP per capita, its social protection system ranks as intermediate, being
even more limited than those of many countries with lower GDP per capita.
Figure 10
Latin America (selected countries): GDP per capita and the Social Protection Index,
around 2012
0.9

Uruguay

0.8

Costa Rica

Social Protection Index

0.7

Argentina

0.6

Venezuela(Bol. Rep. of)Colombia

0.5

Peru

0.4

EcuadorPanamaDominican Rep.

Paraguay

0.3

Bolivia(Plur. State of)

0.2

MexicoEl Salvador

Nicaragua

0.1
-

Chile

BrazilGuatemalaHonduras

-

1 000

2 000

3 000

4 000
5 000
6 000
GDP per capita (2005 dollars)

7 000

8 000

9 000

10 000Source: Prepared by the authors, on the basis of data from the Economic Commission for Latin America and the Caribbean (ECLAC).

Thus, it is not true that countries can only afford to spend a certain amount on social protection
at each level of GDP. In fact, given the time it takes to build well-functioning social protection, waiting
until high levels of GDP have been achieved before introducing comprehensive social protection
systems is not an efficient option (Cichon and Scholz, 2009).
Figure 11 shows changes in the Social Protection Index between 2002 and 2012 and averageannual rates of per capita GDP growth. As can be seen, there is no negative association between
improvements in the Social Protection Index and economic growth. Rather, the correlation between
these two variables is close to nil (-0.007). Indeed, the three countries whose Social Protection Index
values increased the most, Peru, the Dominican Republic and Colombia, grew at rates above the Latin
American average over the period analysed. There is, therefore, no evidence of a trade-off between
expanding social protection systems and growth.

21 The findings for myths 1 and 2 also hold when the social spending share alone is considered.

Social protection systems, redistribution and growth in Latin America

CEPAL Review N° 122 • August 2017 25

Figure 11
Latin America (selected countries): average annual rates of per capita GDP growth and changes
in the Social Protection Index, 2002-2012
7
Panama6

Argentina

Average annual GDP growth (percentages)

Uruguay-0.05

5Dominican Rep.

4
Chile

Costa Rica

3

Venezuela (Bol. Rep. of)BrazilEcuadorNicaragua

Honduras 2

Colombia

Bolivia(Plur. State of)Paraguay
El Salvador

1
0

Peru

MexicoGuatemala

-

0.05

0.10
0.15
Change in Social Protection Index

0.20

0.25

Source: Prepared by the authors, on the basis of data from the Economic Commission for Latin America and the Caribbean (ECLAC).

This is in line with recent International Monetary Fund (IMF) studies that have found noevidence of a trade-off between redistribution and growth, with the authors of one of them stating:“Redistribution appears generally benign in terms of its impact on growth; only in extreme cases isthere some evidence that it may have direct negative effects on growth” (Ostry, Berg and Tsangarides,
2014, p. 2). This means that the combined direct and indirect effects of redistribution, including the
growth effects of the resulting lower inequality, are on average positive for growth, which obviously has
major implications for public policy.
The final myth is that economic growth will automatically reduce poverty. Poverty in Latin
America did decrease significantly during the decade from 2003 to 2013: whereas 43% of the region’s
population were poor in the early 2000s, the poverty rate in 2013 was only 28%, according to ECLAC
data. This rapid progress on poverty relied on a combination of high economic growth and redistribution.
Economic growth favoured the poor, in that incomes in the lowest deciles of the distribution grew
more quickly than those in the top deciles, while faster growth also translated into higher formal
employment. Meanwhile, higher social spending had major redistributive effects, reducing poverty andinequality among the poor (Lustig and others, 2013).22
As can be seen in figure 12, a higher Social Protection Index score and higher per capita GDP
both reduce poverty. Interestingly, though, there seems to have been a stronger correlation in Latin
America between changes in the Social Protection Index and poverty reduction (left-hand chart) thanbetween annual per capita GDP growth and poverty reduction (right-hand chart).23 This indicates thatpoverty reduction was more strongly associated with higher Social Protection Index scores than withGDP growth rates.

22 See Cecchini (2014) and Fiszbein and others (2009).
23 Even when some simple regressions are run, the Social Protection Index has a higher and more significant R2 than percapita GDP.

José Antonio Ocampo and Natalie Gómez-Arteaga

26 CEPAL Review N° 122 • August 2017

Figure 12
Latin America (selected countries): changes in poverty rates versus Social Protection Indexscores and annual per capita GDP growth, 2002-2012
0-5
Honduras

0.10
Mexico-15

El Salvador
Nicaragua
Uruguay
PanamaChile-20

Paraguay-10
Change in poverty rate
(percentage points)

0.00
0.05
Costa Rica

-25
-30
-35

0.15

0.20

0.25

Colombia

BrazilArgentina
Peru

Change in Social Protection Index

1-5

Dominican Rep.

Venezuela (Bol. Rep. of)

Bolivia (Plur. State of)Ecuador

00.30

Change in poverty rate
(percentage points)

-0.05

-10

2
MexicoEl Salvador

3
Honduras
Nicaragua-15
Colombia
-20
-25
-30
-35

4
5
Costa Rica
Dominican Rep.

Brazil7

Uruguay
PanamaChile
Venezuela (Bol. Rep. of)
Paraguay

Bolivia (Plur. State of)Ecuador6

Argentina
Peru

Average annual per capita GDP growth (percentages)

Source: Prepared by the authors, on the basis of data from the Economic Commission for Latin America and the Caribbean (ECLAC).

A simple regression analysis of the absolute change in the poverty rate (in percentage points)
between 2002 and 2012 as a function of average annual per capita GDP growth and absolutechanges in the Social Protection Index shows that poverty reduction is significantly and positively
associated with both (table 2), after controlling for variations in the level of inequality.24 Despite thiscorrelation, though, the standardized beta coefficient, which represents the change in the poverty
rate for every one standard deviation change in the explanatory variable, shows that a one standard
deviation change in the Social Protection Index has a larger poverty reduction effect than a change ofthis size in per capita GDP (models 3 and 4). The stability of the coefficients estimated for both GDP
growth and the Social Protection Index indicates that they are robust.
One specification of the model regressed the poverty rate as a function of GDP growthand social spending (without incorporating the Social Protection Index). Interestingly, higher social
spending per se is not significantly associated with the reduction in poverty in the period analysed, as
shown in regression 5. An adjusted Social Protection Index was then calculated in which the social
spending dimension was not included, but only the coverage indicators (the universality and solidarity
dimensions). As regression 6 shows, although social spending still has no significant effect on poverty
reduction, an improvement in the adjusted Social Protection Index (without social spending) does. This
could mean that social spending per se is not necessarily associated with poverty reduction unlessaccompanied by an expansion in the coverage of social services. As with regressions 3 and 4, anincrease of one standard deviation in the adjusted Social Protection Index has a greater effect than thesame increase in GDP.
These results should not be interpreted as requiring a choice between transfer-based poverty
reduction and growth-based poverty reduction, but rather as evidence of their strong complementarities.
Without well-designed redistributive mechanisms such as comprehensive social protection systems,
economic growth may not have major effects on poverty, and such effects as there are may not
be automatic.25
Given the expectation of lower economic growth in the region for the foreseeable future,continuing with the expansion of social protection systems and universal coverage may be the best
possible strategy for poverty reduction and a continuation of the positive social trends of the decadefrom 2003 to 2013.
24 Including the demographic dependency ratio did not produce statistically significant effects, and for that reason (and the limited

degrees of freedom involved) those results were excluded from the table.
25 Cichon and Scholz (2009) arrive at the same conclusions from a similar analysis of other countries.

Social protection systems, redistribution and growth in Latin America

CEPAL Review N° 122 • August 2017 27

Table 2
Regression analysis
Variable

(1)

(2)

(3)

(4)

(5)

(6)

Model 1Model 2Model 3Model 4Model 5Model 6-1.384**(-0.464)-1.392**(-0.466)-2.353**(-0.375)-1.196**(-0.401)-1.951**(-0.311)1.022***(0.555)-2.062*(-0.329)
1.178***(0.640)-0.072(-0.229)-0.03718
0.356-0.00618
0.655-1.213(-0.193)1.039***(0.564)-0.014(-0.045)-0.432***(-0.463)-0.00618
0.712

Change in Social Protection Index
Per capita GDP growth-2.332*(-0.372)

Change in Gini coefficient
Change in social spending
Change in adjusted Social Protection Index
Constant
Observations
R2-0.081**18
0.138-0.105***
18
0.215

0.054
18
0.547

Source: Prepared by the authors.
Note: Normalized beta coefficients in parentheses.
*** p<0.01, ** p<0.05, * p<0.1

VII. Conclusions
Given the still high levels of labour market informality in most Latin American countries, as well as
low mandatory contributions, the limited coverage of contributory social protection and the small
redistributive impact of fiscal policy, the challenges of social policy and social protection in particular inan era of slower economic growth will be large. New solutions are needed for transfers and taxes alike.
There should be a move towards universal benefits and expanded non-contributory social protection
mechanisms in parallel with labour formalization efforts and flexible mechanisms to increase social
insurance contributions and benefits. The rising middle class has new social protection demands, andmore of the same will not be enough: fresh resources (from higher contributions but also taxes) anduniversal coverage (with a mix of contributory and non-contributory schemes) are essential. Targetedsocial assistance programmes, a strong focus in recent decades, are simply not enough.
Universal coverage of social services should thus be the essential objective of social policy andis the best guarantee that the redistributive impact of social spending will be progressive. Universal
benefits will prove more effective at reducing income inequality and creating more equal societies.
The causality works both ways: more equal societies demand more universal systems of social policy
and social protection, while the latter in turn contribute to equality. A further advantage of universal
policies is their political appeal, particularly to the middle classes, which is essential if there is to
be political backing for the task of raising the public sector resources necessary to make universal
policies effective.
There is thus a major challenge for the fiscal regime, and the crux is the low tax revenue of Latin
America, particularly from personal income taxes, in combination with low transfers, as discussed
extensively by ECLAC, the World Bank and IMF (see, for example, IMF, 2014 and 2015). The ability
to raise taxes, and more redistributive taxes in particular, to create more universal systems of social
spending is thus the domain in which the battle for equity can be expected to be fought in years
to come.

José Antonio Ocampo and Natalie Gómez-Arteaga

28 CEPAL Review N° 122 • August 2017

Bibliography
Angulo, R. and N. Gómez (2015), “Inclusión social e inclusión productiva de los beneficiarios del programaMás Familias en Acción: estudio de caso de Colombia” [online] http://dds.cepal.org/redesoc/archivos_
recursos/4371/Roberto-Angulo_2014_Colombia.pdf.
Barrientos, A. (2011), “On the distributional implications of social protection reforms in Latin America”, Working
Paper, No. 2011/69, Helsinki, World Institute for Development Economics Research (UNU-WIDER).
Bastagli, F., D. Coady and S. Gupta (2012), “Income inequality and fiscal policy”, IMF Staff Discussion Note,
SDN/12/08, Washington, D.C., International Monetary Fund.
Beneke, M., N. Lustig and J.A. Oliva (2015), “El impacto de los impuestos y el gasto social en la desigualdady la pobreza en El Salvador”, CEQ Working Paper, No. 26, CEQ Institute.
Bértola, L. and J.A. Ocampo (2012), The Economic Development of Latin America since Independence,
Oxford, Oxford University Press.
Cabrera, M., N. Lustig and H.E. Morán (2015), “Fiscal policy, inequality, and the ethnic divide in Guatemala”,
World Development, vol. 76, Amsterdam, Elsevier.
Cecchini, S. (2014), “Social protection, poverty and inequality: a comparative perspective”, Journal of Southeast
Asian Economies, vol. 31, No. 1.
Cecchini, S. and R. Martínez (2012), “Inclusive social protection in Latin America: a comprehensive, rightsbased approach”, ECLAC Books, No. 111, Santiago, Economic Commission for Latin America and the
Caribbean (ECLAC).
Cichon, M. and W. Scholz (2009), “Social security social impact and economic performance: a farewell to thethree famous myths”, Building Decent Societies: Rethinking the Role of Social Security in State Building,
P. Townsend (ed.), London, Palgrave Macmillan.
ECLAC (Economic Commission for Latin America and the Caribbean) (2016), Inclusive Social Development:
The Next Generation of Policies for Overcoming Poverty and Reducing Inequality in Latin America andthe Caribbean (LC/L.4056/Rev.1), Santiago.
(2014a), Compacts for Equality: Towards a Sustainable Future (LC/G.2586(SES.35/3)), Santiago.
(2014b), Social Panorama of Latin America 2013 (LC/G.2580), Santiago.
(2014c), Social Panorama of Latin America 2014 (LC/G.2635-P), Santiago.
(2000), Equity, Development and Citizenship (LC/G.2071(SES.28/3)), Santiago.
Ferreira, F. and others (2013), Economic Mobility and the Rise of the Latin American Middle Class, Washington,
D.C., World Bank.
Ferreira, F. and D. Robalino (2011), “Social assistance in Latin America: achievements and limitations”,
Handbook of Latin American Economics, J.A. Ocampo and J. Ros (eds.), Oxford, Oxford University Press.
Filgueira, F. and others (2006), “Universalismo básico: una alternativa posible y necesaria para mejorar lascondiciones de vida”, Universalismo básico: una nueva política social para América Latina, C. Molina(ed.), Washington, D.C., Inter-American Development Bank.
Fiszbein, A. and others (2009), Conditional Cash Transfers: Reducing Present and Future Poverty”, Washington,
D.C., World Bank [online] https://openknowledge.worldbank.org/handle/10986/2597.
Goñi, E., H. López and L. Servén (2011), “Fiscal redistribution and income inequality in Latin America”, World
Development, vol. 39, No. 9, Amsterdam, Elsevier.
Hanni, M., R. Martner and A. Podestá (2015), “The redistributive potential of taxation in Latin America”,
CEPAL Review, No. 116 (LC/G.2643-P), Santiago, Economic Commission for Latin America and the
Caribbean (ECLAC).
Higgins, S. and N. Lustig (2015), “Can a poverty-reducing and progressive tax and transfer system hurt
the poor?”, CGD Working Paper, No. 405, Washington, D.C., Center for Global Development [online]
http://www.cgdev.org/publication/can-poverty-reducing-and-progressive-tax-and-transfer-systemhurtpoor%03-working-paper.
Higgins, S. and others (2013a), “Social spending, taxes and income redistribution in Paraguay”, CEQ Working
Paper, No. 11, CEQ Institute.
(2013b), “Comparing the incidence of taxes and social spending in Brazil and the United States”,
CEQ Working Paper, No. 16, CEQ Insitute.
ILO (International Labour Organization) (2014a), World Social Protection Report, Geneva.
(2014b), “Monotax: promoting formalization and protection of independent workers”, Policy Brief,
No. 02/2014.

Social protection systems, redistribution and growth in Latin America

CEPAL Review N° 122 • August 2017 29(2012), Social Security for All: Building Social Protection Floors and Comprehensive Social Security
Systems. The Strategy of the International Labour Organization, Geneva.
(2008), ILO Declaration on Social Justice for a Fair Globalization, Geneva, International Labour Office.
IMF (International Monetary Fund) (2015), World Economic Outlook: Uneven Growth, Short- and Long-Term
Factors, Washington, D.C.
(2014), “Fiscal policy and income inequality”, IMF Policy Paper, Washington, D.C.
Kaplan, D. and S. Levy (2014), “The evolution of social security systems in Latin America”, Social Insurance,
Informality, and Labor Markets: How to Protect Workers while Creating Good Jobs, M. Frolich and others(eds.), New York, Oxford University Press.
Korpi, W. and J. Palme (1998), “The paradox of redistribution and strategies of equality: welfare state institutions,inequality and poverty in the Western countries”, American Sociological Review, vol. 63, No. 5.
Llerena, F. and others (2015), “Social spending, taxes and income redistribution in Ecuador”, CEQ Working
Paper, No. 28, CEQ Institute.
López-Calva, L.F. and E. Ortiz-Juárez (2014), “A vulnerability approach to the definition of the middle class”,
Journal of Economic Inequality, vol. 12, No. 1, Springer.
Lustig, N. and S. Higgins (2013), “Commitment to Equity Project: estimating the incidence of social spending,
subsidies and taxes. Handbook”, CEQ Working Paper, No. 1, CEQ Institute.
Lustig, N., L.F. López-Calva and E. Ortiz-Juárez (2013), “Deconstructing the decline in inequality in Latin
America”, Policy Research Working Paper, No. 6552, Washington, D.C., World Bank.
Lustig, N. and others (2012), “The impact of taxes and social spending on inequality and poverty in Argentina,
Bolivia, Brazil, Mexico and Peru: a synthesis of results”, CEQ Working Paper, No. 3, CEQ Institute.
Lustig, N. and C. Pessino (2013), “Social spending and income redistribution in Argentina in the 2000s: therising role of noncontributory pensions”, CEQ Working Paper, No. 5, CEQ Institute.
Lustig, N., C. Pessino and J. Scott (2013), “The impact of taxes and social spending on inequality and poverty
in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: an overview”, CEQ Working Paper, No. 13,
CEQ Institute.
Lustig, N. and S. Martínez-Aguilar (2016), “Winners and losers: the impact of fiscal policy on the poor andvulnerable in Latin America”, unpublished.
Marshall, T.H. (1992), “Citizenship and social class”, Citizenship and Social Class, T.H. Marshall and
T. Bottomore, London, Pluto Press.
Montenegro Torres, F. and O.B. Acevedo (2013), “Colombia case study: the subsidized regime of Colombia’s
national health insurance system”, Universal Health Coverage (UNICO) Studies Series, No. 15, Washington,
D.C., World Bank.
Ocampo, J.A. (2008), “Las concepciones de la política social: universalismo versus focalización”, Nueva
Sociedad, No. 215.
(2007), “Market, social cohesion, and democracy”, Policy Matters: Economic and Social Polcies to
Sustain Equitable Development, José Antonio Ocampo, Jomo Kwame Sundaram and Sarbuland Khan
(eds.), Orient Longman.
Ocampo, J.A. and N. Gómez-Arteaga (2016), “Social protection systems in Latin America: an assessment”,
Working Paper, No. 52, Geneva, International Labour Organization (ILO).
OECD (Organization for Economic Cooperation and Development) (2011), Divided We Stand: Why Inequality
Keeps Rising, Paris.
Ostry, J., A. Berg and Ch. Tsangarides (2014), “Redistribution, inequality, and growth”, IMF Staff Discussion
Note, SDN/14/02, Washington, D.C., International Monetary Fund.
Santos, M.E. and others (2015), “A multidimensional poverty index for Latin America”, OPHI Working Paper,
No. 79, University of Oxford.
Sauma, J. and D. Trejos (2014), “Gasto público social, impuestos, redistribución del ingreso y pobreza en
Costa Rica”, CEQ Working Paper, No. 18, CEQ Institute.
Sen, A. (1999), Development as Freedom, New York, Alfred A. Knopf.
UNDP (United Nations Development Program) (2004), Democracy in Latin America: Toward a Citizens’
Democracy, Buenos Aires, Aguilar, Altea, Taurus, Alfaguara.
Williamson, J. (1990), “What Washington means by policy reform”, Latin American Adjustment. How Much
Has Happened?, John Williamson (ed.), Washington, D.C., Institute for International Economics.

José Antonio Ocampo and Natalie Gómez-Arteaga

30 CEPAL Review N° 122 • August 2017

Annex A1
Table A1.1
Indicators used to construct the Social Protection Index
Goalpost(maximum)Dimension

Indicator

Measurement

Universality

Workforce accessto health provision

Proportion of wage earners withaccess to health provision100%

28.80%

Social Panorama of
Latin America 2013
(ECLAC, 2014b)

Workforce accessto pensions

Proportion of wage earners
enrolled in a pension system

100%

26.30%

Social Panorama of
Latin America 2013
(ECLAC, 2014b)

Older
population receivinga pension

Proportion of older population(over 65) receiving a pension

100%

5.70%

Social Panorama of
Latin America 2013
(ECLAC, 2014b)

Coverage gap inaccess to healthprovision by typeof employment

Coverage gap in access to health provision(wage workers covered minus nonwage workers covered as a percentage
of total workers in each group)

0%

-97%

Social Panorama of
Latin America 2013
(ECLAC, 2014b)

Coverage gap in
pension scheme
membership by typeof employment

Coverage gap in pension scheme
membership (wage workers enrolled
minus non-wage workers enrolled as apercentage of total workers in each group)

0%

-98%

Social Panorama of
Latin America 2013
(ECLAC, 2014b)

Coverage in poorest
quintile (all social
assistance)

Percentage of population in thepoorest quintile covered by any kindof social assistance programme

100%

5%

World Bank Atlasof Social Protection
Indicators of Resilienceand Equity (ASPIRE)

Social protection
for the poor

Proportion of multidimensionally poor
households with access to at least one of thefollowing types of protection: (i) a member has
some form of contributory health insurance;(ii) at least one member is contributing toa social security system; (iii) a member
receives a pension or retirement income

100%

22%

Santos and others (2015)

Social spendingon healthSocial spending on healthas a percentage of GDP

6.20%

1.10%

Social Panorama of
Latin America 2014
(ECLAC, 2014c)

Social spending onsocial protection

Social spending on social security andassistance as a percentage of GDP

13.50%

0.30%

Social Panorama of
Latin America 2014
(ECLAC, 2014c)

Solidarity

Social spending

Minimum Data source

Source: Prepared by the authors, on the basis of Economic Commission for Latin America and the Caribbean (ECLAC),
Social Panorama of Latin America 2013 (LC/G.2580), Santiago, 2014; Social Panorama of Latin America 2014 (LC/G.2635-P), Santiago, 2014; and M.E. Santos and others, “A multidimensional poverty index for Latin America”, OPHI
Working Paper, No. 79, University of Oxford, 2015.

Social protection systems, redistribution and growth in Latin America