Brazil is one of the world’s most unequal country. Its top 1 percent of wealthy individuals concentrates more revenue than anywhere else. The six wealthiest people in Brazil (all white males) have the net worth of 100 million poorer Brazilians combined. However, taking percentages of total revenue in a country does not tell the whole story. New research by Brazil’s Institute of Applied Economic Research could help us make a step forward.
Using a methodology reasonably new to the Brazilian socioeconomic literature, three researchers decided to measure how much each social group is responsible for the country’s inequality. According to their findings, Brazil’s top 10 percent richer alone is responsible for 51.5 percent of Brazil’s income gap – which is more than in other countries. In the U.S., the responsibility of the top 10 percent for inequality is 45 percent, in Germany, it is 44 percent, and in the UK, 41 percent.
The top 10 percent are classified by a monthly revenue of BRL 5,214 – or USD 1,262, according to the September 19, 2018 exchange rate. In the U.S., a 10-percenter earns roughly USD 11,120, according to 2014 tax data.
Researchers Marcos Hecksher, Pedro Luis do Nascimento Silva, and Carlos Henrique Corseuil used the J-divergence method in their study. As they explain, “the J-divergence of a population and its corresponding sample estimates can be easily decomposed as the sum of the individual contributions to the total inequality.” For their calculations, they used microdata on equivalent and per capita household total monthly income from the Brazilian National Household Sample Survey (Pnad) between 1981 and 2015.
Who is more responsible for income inequality in Brazil?
Between 2001 and 2015, the contributions of the top 10 percent, the poorest 10 percent, and the middle of the pack in monthly revenue distribution declined in absolute terms. However, the research reveals that the contribution to income inequality rose among the two extremes. While the top 10 percent’s share of the “blame” went from 50.9 to 51.5 percent, among the poorest, it rose from 17.6 to 20.4 percent. The researchers still can’t explain this movement.
Contribution of three income strata according to J-divergence
The importance of the wealthiest 10 percent in the J-divergence trajectory could help in understanding how income inequality has evolved in Brazil. Many scholars pointed out a considerable reduction of the social abyss until 2014, using data from Pnad. However, recent academic works showed that the disparity is much broader and more resilient than initially thought.
That’s because Pnad data may underestimate the revenue of the wealthiest households, as it is a survey where people self-declare their income. As more affluent families are less keen to disclose their net worth, some affluent domiciles are computed as having zero income. More recent studies, using data from income taxes, shows that the piece of the pie reserved for wealthier Brazilians has not changed much.
“Being able to accurately know the revenue data of the richest [households] should be helpful to the country in the (re)design of its revenue-distributing policies, such as progressive tax rates on income and estate,” say the researchers.
Variation of participation in per capita household income J-divergence by distribution vigintiles, in percentage points
Extreme poverty advances in Brazil
A World Bank study shows that extreme poverty grew in Brazil after the first year of the country’s worst economic recession on record. In 2015, 6.9 million people were living with less than USD 1.90 per day – 3.4 percent of the population. One year prior, that rate was at 2.8 percent. People living on less than USD 5.50 per day also grew, from 18 to 20.6 percent.
Meanwhile, the number of new millionaires in Brazil increased. A Credit Suisse Global Wealth Report published at the end of 2016 also shows that 10,000 Brazilians became millionaires that year, while the country’s average income fell by 30 percent.