Poverty and Income Inequality in Rural Brazil: An Analysis of the Recent Decline Steven Helfand, Rudi Rocha e Henrique Vinhais Forthcoming in Portuguese in Pesquisa e Planejamento Econ

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Poverty and Income Inequality in Rural Brazil
An Analysis of the Recent Decline Steven
Helfand, Rudi Rocha e Henrique Vinhais
Forthcoming in Portuguese in Pesquisa e
Planejamento Econômico asPobreza e
Desigualdade de Renda no Brasil Rural Uma
Análise da Queda Recente http//www.ipea.gov.br/

PACDEV 3/2010
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I. Introduction The Issues

• What happened to rural poverty in the past 15
  years?
• Recent decline in inequality in Brazil (IPEA
  book, 2006).
• How does rural Brazil compare to Brazil?
• How have alternative factors contributed to the
  decline in rural poverty?

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I. Introduction The Questions

• Why did rural poverty decline?
• Decompose changes in rural poverty into growth
  and inequality components for 1992-98 and
  1998-05.
• Why did income grow?
• Analyze evolution of sources of income.
• Why did inequality decline?
• Decompose changes in inequality into changes in
  shares and changes in concentration of each
  income source.
• Provide estimates of the magnitude of
  contributions to the decline in rural poverty
• Earned income, Bolsa Familia, Social security

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II. Methods and Data

• 1) Methods
• a) Decomposition of changes in poverty
• b) Decomposition of changes in Gini
• 2) Construction of variables
• 3) Limitations of PNAD and related issues

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Methods

• a) Decomposition of changes in poverty into
  income and inequality components (Datt and
  Ravallion, 1992)
• Pt a measure of poverty
• z the poverty line
• ?t mean income
• Lt a vector of parameters that describe the
  Lorenz curve

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• Poverty change due to change in mean income from
  t to tn, holding inequality constant
• Poverty change due to change in inequality from t
  to tn, holding mean income constant
• Residual

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• Estimate a quadratic Lorenz curve
• L cumulative of income
• p cumulative of population
• a, b e c parameters to be estimated
• e random error

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• And use the estimated parameters for the
  simulation
• m b2-4ª
• n 2be-4c
• e -(abc1)
• r (n2-4me2)1/2

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Methods Decomposition of change in Gini

• Gini is a measure of overall income inequality (0
  gt 1)
• Concentration coefficient is a measure of income
  inequality for each source of income (-1 gt 1)
• Gini sum of concentration coefficients weighted
  by shares.

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Decomposition of change in Gini into -Changes
in shares (s) of income sources -Changes in
concentration (c) of income sources
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III. Results

• 1) Decomposition of evolution of poverty

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Rural BR vs BR1992-98 Similar income
dominates.1998-05 Distinct income grows,
Gini falls more, pov. falls more.
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But in robustness check to alternative definition
of rural for 1998-05, the magnitudes are
reversed.
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III. Results

• 2) Why did income grow?

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Income growth for rural Brazil

• Earned income fell as a share of total income
  from 81 to 72
• Social security grew steadily, and in 2005
  represented 23 of rural income
• -Changes in 1988 Constitution
• -Women, retirement age, benefits
• -Increasing real value of min. wage
• Bolsa Familia grew significantly in recent years

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Coverage
Leakage?
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III. Results

• 3) Why did inequality decline?

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88 de-concentration 12 change in shares
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What have we learned about 1998-05?

• Rural poverty reduction (9.7pp)
• -Income growth 43, ineq. decline 55
• -Brazil -5, 105
• Income growth per capita (9.8)
• -Earned income flat
• -Social security explains 69 ( 37) BF 38
  ( 382)
• -Brazil income -1 EI -5 SS 18 BF
  96
• Inequality decline
• -60 earned income
• -44 BF
• -Social security has increased inequality in
  both periods
• -Brazil BF only accounts for 25 of decline

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Final issues

• Robustness to change in defn. of rural?
• Results robust, and contrast w/ Brazil even
  greater
• Regional differences matter a lot

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Conclusions

• The persistence of rural poverty is not an
  accurate characterization
• -Poverty still unacceptably high (46 in 2005)
• -But poverty fell by 15pp 1992-05
• -Poverty and ineq. fell faster in rural areas
• Rural poverty reduction did not occur uniformly
  across regions.

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Conclusions

• BF explained around 40 of poverty reduction in
  recent period
• - Through income and inequality channels
• - Expansion of coverage
• Social security explained about 25!
• - Through income channel only
• - Expansion of coverage
• - Increase in real benefits (tied to min. wage)
• Labor income explained about 33
• In exclusively rural areas, social security and
  Bolsa Familia have similar magnitudes
• BF 37 SS 27

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Conclusions

• Expansion of social security in 1990s and BF in
  2000s are unlikely to be repeated in the future.
• These programs combined to explain all of income
  growth 1998-05
• Alternative engines of income growth must be
  found
• Earned income still represents over 70 of income
• The Northeast
• Home to 2/3 of rural poor poverty fell least
  here
• Earned income declined 1995-06
• Requires special attention in terms of research
  and policies

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• The End

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Additional tables from paper
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