Jaramillo, M. y Sparrow, B. (2013). La incidencia del gasto social y los impuestos en el Perú (Documentos de Investigación N° 70). Lima: GRADE.

Improving the effectiveness of fiscal policy with respect to redistribution and poverty reduction is key to Peru’s equitable development. Recent studies suggest that public transfers and grants are responsible for only one tenth of the poverty reduction achieved in the last decade. By analyzing the incidence of taxes and transfers based on household survey data, this study estimates the effects of fiscal policy on poverty and inequality in our country.

The findings show that the extent of inequality reduction generated by Peru’s fiscal policy is limited. This is associated with low social spending rather than inefficient social spending. Most of the components of social spending are progressive and social spending in general is progressive: direct monetary transfers are well targeted and effective especially in reducing extreme poverty in rural areas. At the same time, in-kind health and education transfers are effective in reducing inequality. Finally, direct taxes are found to slightly mitigate inequality while indirect taxes are neutral when informality is incorporated into the calculations. One policy implication is that targeted transfers are the most effective way to reduce poverty in the short run. In contrast, linking social benefits to formal employment tends to exclude the poor.