Why have poverty and income inequality increased so much? Argentina 1991-2002

Abstract

This paper analyzes the sources of changes in poverty and income inequality among Argentine households during the 1991-2001 period. We assess the effect of changes in labor market participation, unemployment, education levels, and returns to human capital on income inequality and poverty by using a micro-simulation approach. This procedure allows us to evaluate the impact of each one of those changes on several measures of income inequality and poverty during the nineties. We found that unemployment accounts for a large part of the increase in income inequality and poverty that this country experienced in the last decade. In January 2002, Argentina declared the default on its external debt and devaluated the peso 40% ending the convertibility period. Since then, a growing inflation is affecting the purchasing power of Argentine households for the first time in more than ten years. Using our methodology we estimate the effect of the emerging inflation on poverty among households. Our findings indicate that inflation increases poverty significantly at least in the short run.