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This chapter presents the first multi-country history of how Latin American government spending and taxes have reshaped the distribution of income in the long run. We combine our new historical time series for six countries with impressive recent studies of their fiscal redistribution patterns in the twenty-first century. The rising share of social spending has not been directed strongly toward the poor. The swings in fiscal redistribution in Chilean and Argentine history have been particularly dramatic. Latin America as a whole stands out as a region with a low rate of investment in education and infrastructure, redistributing away from future generations toward pensioners. Pension commitments have locked the region’s governments into prolonged pension deficits, a strong case of historical path dependence.

Equality has been at the center of ECLAC´s analysis of the region since structuralist times. In those pioneering writings, the distribution of assets and the concentration of power in the hands of elites were crucial aspects to understand (the lack of) equality in the region. Following this tradition, the last three documents that the institution submitted for consideration by the Governments of Latin America and the Caribbean at its three last sessions have put equality back in the center of the regional agenda, expanding the conception of equality beyond distributive fairness—whose scope tends to be confined to the distribution of transferable, quantifiable resources—taking in other dimensions and considering equality in a “relational” context of socialization, autonomy, and recognition.

Income inequality is a salient economic malaise in Latin America and the Caribbean, where for decades it has been higher than in any other region in the world (Williamson 2015). A growing body of literature suggests that after a long period of growing or stagnant inequality, the trajectory of household income inequality shows a visible kink around 2003—rising during the 1990s and until about 2002, when it started to descend, a trend that was particularly steep during the boom period of 2003–2011 before flattening out during the post-2011 slowdown. This trajectory contrasts with that of Latin America and the Caribbean in previous periods or other regions in the same period (Alvaredo and Gasparini 2015; De Ferranti et al. 2004; De la Torre et al. 2014; Gasparini and Lustig 2011; López-Calva and Lustig 2010).

The recent focus on top incomes at the international level (Atkinson and Piketty 2010; Piketty 2014; Piketty and Saez 2006) should help placing the spotlight on Latin America. The region has traditionally been characterised by high concentration of income and political influence of the elite (World Bank 2003). The interaction between economic and political concentration has led to periodic social conflicts and often contributed to institutional weakness. Social policy has also failed to redistribute income significantly, benefiting small segments of the population instead—as shown by Arroyo and Lindert in their contribution to this volume.

One oft-noted observation of the twentieth-century economic history of Latin America in general and of the import-substitution industrialization strategy (ISI) in particular is the neglect of agriculture and the related structural heterogeneity (Baer 1972; Kay 2002; Bertola and Ocampo 2012). In Latin America, the transformation of agriculture has not been regarded as a centerpiece of the adopted development strategies and, despite some attempts at rural reform, seldom promoted. It might be fair to say that biases against the rural sector have been a defining characteristic of Latin American economic development (Lipton 1977; Griffin et al. 2002; Johnston and Kilby 1975; Reynolds 1996). The dual structure remained even after the ISI period and the switch to the new economic model. A stylized fact is that the continent, even beyond the so-called of the 1980s, has been in a state of stagnation: weak structural transformation, slow growth, and consistently unequal distribution of income (Bulmer-Thomas 2005). Since the early 2000s, however, many economic indicators, as reported from Economic Outlooks and Reports by the World Bank, IMF or OECD, have been pointing in another direction: steady and relatively high income growth per capita, advances on the commodity export markets, and increasing inflows of foreign direct investments. In terms of social indicators, improvements have also been made: the number of people classified as middle class now surpasses the number of poor; poverty declined from 152 million people living below 2.5 dollars a day in 2000 to around 83 million people in 2010 (World Bank 2015); and income inequality in the last decade declined in 15 out of 16 countries with comparable data at a rate of 1.1 % per year (Lustig et al. 2013).

Latin America is a region which has been plagued with persistent problems of social cohesion linked to inequality (Bértola and Ocampo 2012; Fitzgerald et al. 2011; Huber et al. 2006; Milanovic and Muñoz de Bustillo 2008; Williamson 2010). Over the long term, the excessive degree of inequality in Latin America was considered an anomaly in international comparisons (Deininger and Squire 1996, 1998). However, over the last two decades, income inequality actually decreased across most countries in the region, though it still remains above the world average (ECLAC 2010; Cornia 2012). With this, Latin America has emerged as a positive anomaly, going against the grain of recent world trends which are heading towards greater inequality (Hvistendahl 2014, Ravallion 2014).

Over the last decade and a half Latin America and the Caribbean have made notable advances in reducing poverty and improving social outcomes. Extreme poverty fell by more than a third from 19.3 % in 2002 to 12.0 % in 2014; and inequality, as measured by the Gini coefficient, fell from 0.56 to 0.51. In parallel, child mortality fell from 32 to 18 deaths per 100,000 children from 2000 to 2013 (see UN IGME 2014). By 2013, school attendance rates among 6–11-year-olds reached 98 %, and among 12–17-year-olds rose to 87 %. Although gaps remain across income and demographic groups, the biggest advances in reducing chronic malnutrition and improving school age-attendance profiles occurred for children from the lowest socioeconomic groups.