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Economia 3.2 (2003) 272-277



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François Bourguignon: This is an interesting paper that shows that meeting the Millennium Development Goals may not be as easy as it would appear in a middle-income country like Brazil, where dollar-a-day poverty is currently as low as 5.3 percent and the target Millennium Development Goal poverty headcount is 3.7 percent. Indeed, the main conclusion of the paper is that some voluntary, strongly targeted redistribution policy is necessary to reach this goal.

The first part of the paper analyzes the combination of growth and untargeted redistribution policies necessary to achieve the poverty MDG in Brazil. Growth is assumed to be distribution neutral, whereas redistribution takes the form of a linear tax whereby everybody is taxed at the same marginal tax rate, t, and receives the same transfer, T, either as a lump sum or, more realistically, in the form of additional public expenditures. The result of the calculations undertaken in the paper on the basis of a representative sample of Brazilian households is as follows. If the MDG had to be met without any kind of redistribution, then per capita growth would have to be around 2 percent per year. This seems ambitious when compared with historical performances: mean real household income per capita grew at 1 percent per year between 1990 and 1999, and it was even lower, 0.7 per cent, in the 1980s. Likewise, if the MDG had to be met through untargeted redistribution only, then it would be necessary to increase tax collection by 3.4 percent of household income, or 2 percent of GDP. This is not small business! Thus, the first conclusion of the paper, which might deserve more emphasis than it is given, is that unless growth performances in the coming fifteen years are much better than what has been observed in the last two decades, some redistribution policy will be necessary to reach the poverty component of the MDG. The extent of redistribution might have to be substantial, though. With a 1 percent growth rate, redistribution should still amount to 1.5 percent of total household income, or approximately 1 percent of GDP. Of course, less redistribution would be necessary if it could be better targeted. [End Page 272]

This first conclusion of the paper calls for two remarks. First, the difficulty that Brazil would have in meeting the MDG through growth stems from its very high level of inequality. Based on the preceding orders ofmagnitude, the growth elasticity of poverty is around 1. It would be around2 if the Gini coefficient could magically be brought down from .59 to .50.1 This is another argument in favor of redistribution policies. Second, the growth-poverty elasticity would be even lower if a more ambitious poverty line were used. In a previous paper, Ferreira, Lanjouw, and Neri set the poverty line in Brazil to 75 reais per capita and per month.2 This is more than three times the equivalent in reais of the dollar-a-day line! Thus, if the poverty MDG were expressed in Brazilian rather than international terms, halving the poverty by 2015 would require much more ambitious redistribution goals.

The second part of the paper further explores the implications of growth for income distribution and poverty by focusing on the role of education, essentially examining the level of poverty reduction that may come from the expansion of education in the working-age population expected between now and 2015. The question being asked, in other words, is whether any substantial change in poverty will be achieved by the increase that is bound to take place in the education of the whole population by 2015, assuming a constant monetary rate of return to education for those people who are active and taking into account the effect on income of a better education on occupational choices. The answer is that not much is to be expected from this evolution: the mean income per capita increases at an annual rate of 0.6 percent, but the poverty headcount is reduced by 0...

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