Comparing the Incidence of Taxes and Social Spending in Brazil and the United States

How much do the Western Hemisphere’s two largest economies and most populous countries, Brazil and the United States, redistribute through social spending and taxes? Although the United States has an income per capita four times as large as Brazil’s, the countries share similarities that make this comparison interesting. This Commitment to Equity report performs the first direct comparison of fiscal incidence in Brazil and the US, including direct cash and food transfers, targeted housing and heating subsidies, public spending on education and health, and personal income, payroll, corporate income, property, and expenditure taxes.

Such comparisons are indeed of interest because income inequality is high in both countries given their levels of development. Although Brazilian inequality is higher than in the US, its GDP per capita is much lower, at about one fourth of the US level. But inequality in America was at a similar level to inequality in Brazil today when it had a similar GDP per capita. Furthermore, the levels of inequality in the two countries are getting closer, with inequality declining in Brazil over the last decade and persistently rising in the US.

The two nations also have other similarities which can be noted. They have low intergenerational mobility and high equality of opportunity. More obviously, they are both are relatively large, western hemisphere nations with substantial interregional inequality and large racial and ethnic minorities. The unequal distribution of human capital across races is an important determinant of income inequality in both countries.

The lessons from this exercise are instructive. Transfers that maintain consumption are usually in cash or near cash terms. Transfers that can be seen as investments in human capital (health and education) are most often in-kind. In the United States the systems are separate, but generally targeted to the poor. In Brazil, the relatively massive Bolsa Família delivers both consumption (to families) and education and healthcare to their children, in a well-targeted program. Some have argued that the United States ought to consider a similar program; conditional cash transfer programs modeled after Bolsa Família and Mexico’s Oportunidades have in fact been piloted in New York City, Memphis, and the Bronx—their expansion at the national level could prove to be an important redistributive instrument.

Meanwhile, Brazil could benefit from higher quality schools and healthcare (though not at US prices). In addition, now that Brazil’s extreme poor are almost universally covered by at least one cash transfer program, the country might consider incentivizing formality through refundable tax credits. The EITC has been shown to increase labor force participation and increase intergenerational mobility, perhaps because recipients use a portion of the benefits for expenses that help improve economic and social mobility. Brazil might also consider implementing a targeted large-scale food assistance program like SNAP, which is the United States’ most effective anti-poverty program for the non-elderly. Furthermore, both EITC and SNAP were exceptionally responsive to the recession, and had an increasing impact on poverty reduction between 2011 and 2012. 

Perhaps each country could benefit by mimicking the best aspects of the social spending and taxation systems in the other country. Nevertheless, this report suggests that both countries look at the way that other large nations such as Australia and Canada finance and deliver public services with better and more pro-poor redistribution, more equality, and more mobility.


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