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We have recently finished a set of studies on the role the State has on inequality in Brazil. Using survey data we estimate that the State is directly related to (contributes, technically speaking) one third of all income inequality in the country, even after accounting for the equalizing effects of taxes and other direct tributes such as contributions to the public pensions system.
The study focuses on direct transfers to and from the state, as pensions, social assistance, salaries and some tributes. If indirect transfers from the State, as subsidies and interests paid to public bonds, were accounted for, the contribution to inequality would probably be higher. We are not making an apology for a minimal state but rather arguing that in order to reduce inequalities the State must be both strong and egalitarian in its actions. A State that is only strong – in the sense of being stable and commanding a large amount of resources – can actually increase inequality.
The main objective of the studies was to measure to contribution of the State to income inequality in Brazil, and the dynamics of this contribution. For this we applied methods of static and dynamic decomposition of the Gini coefficient to survey data. With these methods they isolate the contributions of different sources of incomes, such as pensions, social assistance and wages, and of taxes. We also used Juhn, Murphy and Pearce decompositions to calculate the effect of public-private wage differentials, which have been increasing in favor of the public sector workers during the last decade.
The project resulted in four studies, which are being published both in English and Portuguese at http://www.ipea.gov.br/portal/