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 as “Pobreza e Desigualdade de Renda no Brasil Rural: Uma Análise da Queda Recente” http://www.ipea.gov.br/ PACDEV 3/2010
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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 as
“Pobreza e Desigualdade de Renda no Brasil Rural: Uma Análise da Queda Recente”
http://www.ipea.gov.br/
PACDEV 3/2010
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?
Poverty Incidence: 1992-2005(PNAD; poverty line = 1/2 min wage of 8/2000)
0.40
0.45
0.50
0.55
0.60
0.65
0.70
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Rural
-15pp
Gini for Rural Brazil(w/out North)
0.500.510.520.530.540.550.560.570.580.590.60
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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
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
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
ttt LzPP ,/
• Poverty change due to change in mean income from t to t+n, holding inequality constant
+• Poverty change due to change in inequality from
t to t+n, holding mean income constant
+• Residual
Estimate a quadratic Lorenz curve:
L = cumulative % of income
p = cumulative % of population
a, b e c parameters to be estimated
ε = random error
)()1()()1( 2 LpcpbLLpaLL
And use the estimated parameters for the simulation
m = b2-4ª
n = 2be-4c
e = -(a+b+c+1)
r = (n2-4me2)1/2
21
2
0 2)2(2
1m
zb
zbrn
mP
Methods: Decomposition of change in Gini
Gini is a measure of overall income inequality (0 => 1)
Concentration coefficient is a measure of income inequality for each source of income (-1 => +1)
Gini = sum of concentration coefficients weighted by shares.
c = concentration coef. s = income share k = income source
k
kk scGini
)( kkk
kk csscGini
)( GcsscGini kkk
kk
Decomposition of change in Gini into
-Changes in shares (s) of income sources-Changes in concentration (c) of income sources
III. Results
1) Decomposition of evolution of poverty
Table 1. Changes in Income, Poverty, and Inequality: Brazil vs. Rural Brazil
1992-98 1998-05 1992-98 1998-05
Domicile income per capitaa 350.7 456.8 453.8 30% -0.7% 145.9 183.1 201.1 26% 9.8%
Source: Author's estimates based on PNAD Microdata.
Note: (a) Domicile income per capita in R$ of 9/2005; changes are percentage changes. (b) Changes are percentage points. North excluded.
Change1992 1998 2005
Change
Brazil Rural Brazil
1992 1998 2005
Rural BR vs BR:1992-98: Similar: income dominates.1998-05: Distinct: income grows, Gini falls more, pov. falls more.
Table 3. Decomposition of Changes in Rural Poverty into Growth and Inequality Components
Estimated change in headcount poverty (percentage points)
Counterfactual 1: Change in income with
inequality constant
Counterfactual 2: Change in inequality with income constant
Residual
1992-1998 -6.97 -9.25 2.50 -0.22
Share of change attributable to 133% -36% 3%component
1998-2005 -9.32 -3.99 -5.17 -0.16
Share of change attributable to component
43% 55% 2%
But in robustness check to alternative definition of “rural” for 1998-05, the magnitudes are reversed.
III. Results
2) Why did income grow?
Table 4. Changes in Domicile Income per Capita in Rural Areas by Income Source
Change % Change Change % Change
Domicile income per capita 145.9 183.1 201.1 37.2 26% 17.97 10%
Labor income Mean 118.7 144.3 144.1 25.6 22% -0.28 0% Share of total 0.81 0.79 0.72 -0.03 -3% -0.07 -9% Contribution to change in total income (%) 69% -2%
Social security income Mean 23.2 33.3 45.7 10.1 43% 12.47 37% Share of total 0.16 0.18 0.23 0.02 14% 0.05 25% Contribution to change in total income (%) 27% 69%
Rents, remittances, gifts Mean 1.29 3.71 2.60 2.42 187% -1.12 -30% Share of total 0.01 0.02 0.01 0.01 128% -0.01 -36% Contribution to change in total income (%) 6% -6%
Other income Mean 2.68 1.81 8.71 -0.9 -32% 6.90 382% Share of total 0.02 0.01 0.04 -0.01 -46% 0.03 338% Contribution to change in total income (%) -2% 38%
Source: Author's estimates based on PNAD Microdata.
Notes: Domicile income per capita and components in R$ of 9/2005. North excluded.
1998-2005
1992 1998 2005
1992-1998
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
Table 5. Percentage of People Living in Domiciles that Received Income Included in the Category "Other Income": Rural Areas by Deciles of the Income Distribution
Percentage of people in decile with
"other income"
Mean value per capita of
"other income"
Percentage of people in decile with
"other income"
Mean value per capita of
"other income"
Percentage of people in decile with
"other income"
Mean value per capita of
"other income"
Deciles
1 2.7% 3.1 3.1% 15.2 66.1% 11.4
2 2.0% 5.4 3.9% 16.9 62.2% 13.5
3 4.2% 4.8 4.5% 22.4 59.7% 14.6
4 4.0% 12.8 3.8% 24.1 48.4% 15.9
5 5.3% 5.1 3.0% 28.4 54.0% 15.8
6 5.7% 13.6 2.1% 20.3 38.1% 19.9
7 8.4% 8.1 2.6% 26.6 30.4% 22.7
8 10.8% 11.8 3.7% 30.1 26.9% 30.8
9 14.7% 21.0 5.1% 31.6 14.6% 50.8
10 21.7% 92.1 9.3% 112.9 11.8% 137.2
Source: Author's estimates based on PNAD Microdata.
Notes: Values are in R$ of 9/2005; means are based on domiciles that received "other income." North excluded.
Bottom 50% 3.6% 21.4 58.1% 14.2
Top 50% 4.6% 44.3 24.4% 52.3
1992 1998 2005
Bolsa Familia
Coverage:
Leakage?
III. Results
3) Why did inequality decline?
Table 6. Components of Domicile Income per Capita and Their Contribution to Rural Income Inequality
1992-1998 1998-2005
Gini index 0.541 0.549 0.504 1.4% -8.1%
Labor income
Concentration indexa 0.532 0.543 0.507 2.1% -6.6%
Share of component in domicile income per capita (%)b 81% 79% 72% -0.03 -0.07
Contribution to Gini index (%)b 80% 78% 72%
Social security income
Concentration indexa 0.560 0.564 0.571 0.5% 1.2%
Share of component in domicile income per capita (%)b 16% 18% 23% 0.02 0.05
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
Final issues:
• Robustness to change in defn. of rural?• Results robust, and contrast w/ Brazil even greater
• Regional differences matter a lot
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.
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%
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