The political economy of redistribution and (in)efficiency in Latin America and the Caribbean

Abstract

Inequality is a crucial issue in Latin America and the Caribbean, alongside very low productivity gains over the last 60 years and low levels of investment and efficiency. Most literature, especially on the political economy determinants of these problems, has considered these issues individually. This article revisits the discussion on the political economy of redistribution (or lack thereof) in the region, embedding it in a broader political economy debate. We characterize the region and its countries in terms of the size of the public sector, the extent of fiscal redistribution and the efficiency of public action. We summarize various strands of literature that explain elements of the fiscal vector individually and provide a framework that combines elements from several strands, explaining why different countries exhibit different configurations of government size, redistribution and efficiency.