The Impacts of Income Transfer Programs on Income Distribution and Poverty in Brazil: An Integrated Microsimulation and Computable General Equilibrium Analysis

A persistent and very high-income inequality is a well known feature of the Brazilian economy. However, from 2001 to 2005 the Gini index presented an unprecedented fall of 4.6 percent combined with significant poverty reduction. Previous studies using partial equilibrium analysis have pointed out the importance of federal government transfer programs in this inequality reduction. The aim of this research is to evaluate the efficiency of the two most important cash transfer programs, “Bolsa Família” and “BPC”, in achieving their purpose of alleviating poverty and reducing the inequality in Brazil’s income distribution using an integrated modeling approach, the CGE-MS model. The simulation results confirm the importance of these programs in reducing inequality from 2003 to 2005. However, the effect on poverty alleviation was not strong. Finally, the methodological approach allows the identification of some important economic facts that were not presented in previous analyses, such as the issue of taxation structure that finances these policies.