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Fiscal policy, inequality and the ethnic divide in Guatemala

Working Paper 2014-343

Abstract

Guatemala is one of the most unequal countries in Latin America and has the highest incidence of poverty. The indigenous population is more than twice as likely of being poor than the nonindigenous group. Fiscal incidence analysis based on the 2009-2010 National Survey of Family Income and Expenditures shows that taxes and transfers do almost nothing to reduce inequality and poverty overall or along ethnic and rural-urban lines. Persistently low tax revenues are the main limiting factor. Tax revenues are not only low but also regressive. Consumption taxes are regressive enough to offset the benefits of cash transfers: poverty after taxes and cash transfers is higher than market income poverty.

Authors: Maynor Cabrera, Nora Lustig, Hilcias E. Moran.

Keywords: inequality, poverty, ethnic divide, fiscal incidence, taxes, social spending, Guatemala.
JEL: D31, H22, I14.