Do taxes and transfers stimulate development in Latin America?

Abstract

This study examines the relationship between fiscal redistribution and human development in 12 Latin American countries over the period 2000–2021. Aiming to evaluate this relationship across the distribution, quantile regression is performed. The results suggest that greater redistribution is associated with higher development, although this relationship's strength decreases during the second half of the distribution. The analysis of taxes’ and government transfers’ redistributive effect is extended to the different dimensions of development—health, education and economy—and obtains significant coefficients at both the beginning and the end of the distribution. Several robustness analyses evaluate the results’ consistency for different specifications and sub-periods. When controlling for socio-economic factors, the intensity of the positive link between redistribution and development decreases. Education is the most affected by redistribution increases. Despite the COVID-19 pandemic's impact, a positive association between redistribution and development is obtained for both the pre-pandemic period and the following years.