Federal transfers, inequality, and redistribution: Contrasting theories and empirical evidence for five Latin American cases

Abstract

Does federalism encourage inequality? Or, do transfers from the central government augment redistribution? This research examines whether variation in the institutional structures as well as the mechanisms and criteria for the distribution of fiscal resources in Argentina, Brazil, Chile, Colombia, and Mexico affect interregional and interpersonal inequality. Using descriptive statistics and regression models for original panel data from these five cases between 1983 and 2013, the study finds that a more progressive redistributive capacity of the central government is statistically associated with improvements in interregional as well as interpersonal equity, challenging the conventional view that federalism reinforces inequality. The article discusses these findings and others from competing arguments, and explores their implications for the discussion on inequality and redistribution in developing nations.