Social Rights, Income Distribution and Economic Growth: The Brazilian social policy experience

7/26/2019 Social Rights, Income Distribution and Economic Growth: The Brazilian social policy experience

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C H A P T E R 7

A woman washing clothes in a stream in the forest. UN Photo/Pernaca Sudhakaran

Creating equality is related tothe idea that the expansion of

the provision of social goodsand services namely educationand access to health care isessential for enabling individualsand/or social groups to acquireskills and capacities.


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Social Rights, Income Distribution andEconomic Growth: The Brazilian socialpolicy experience1

I N T R O D U C T I O N

Social policies are institutional mechanismsthat societies construct over the course of theircountrys history. They are largely the result of theefforts of social movements and political struggles,and their objective is to protect and/or promotethe well-being of the population. Implementedby the state, these policies are constantly at the

centre of political debate, as they account fora considerable portion of public expenditure,among other reasons. This makes them the targetof heated disputes over the allocation of budgetaryresources.

The extent of coverage and the way the benefitsof social policies are distributed can strongly linkthese policies to a countrys economy, especiallywhen government spending takes on a key role indriving economic expansion and improvementsin income distribution. It is thus important to

determine and calculate the extent to which suchpolicies are capable of affecting both aggregatedemand and economic growth.

In societies as heterogeneous as Brazils, the greaterthe income managed and distributed to the lowersocial classes, the greater the capacity to alterconsumption patterns will be, as it opens up thepossibility of increasing aggregate demand and,consequently, stimulating the internal consumermarket. However, guaranteeing the supply ofgoods and social services is also important forthe growth of the economy, as the provision andexpansion of such goods and services requiresgovernments to increase spending on hiringpersonnel, equipment maintenance, purchasingsupplies, etc.

Based on this perspective, the article seeks todemonstrate the relation between social policyand the economy, especially in regards to incomedistribution and economic growth in Brazil inrecent years. It first seeks to define and outline the

concrete dimensions of social policy in Brazil toshow the current scope of the benefits it provides,

state expenditure and the modes of financingused. It then aims to illustrate the connectionsbetween these policies and income distributionand economic growth.

S O C I A L P O L I C Y I N B R A Z I L

The task of defining social policy is morecomplicated than it looks due to the complexity ofthe network of government institutions involved,their respective spheres of activity and the legalframework governing public policies. Here,social policy will be understood as a set of stateprogrammes and actions that provide goods andservices, income transfers and regulation. Theirgoal is to address the needs and social rights2related to various components of the basic livingconditions of the population, including thoselinked to poverty and inequality.

In the case of Brazil, the political agreements thatpaved the way for the elaboration of a broadset of state social policies are very recent. TheFederal Constitution of 1988 is the most importantinstitutional framework in this area, which allowedfor the increase in both access to and the typesof social benefits. The Constitution combinedmeasures that guarantee a series of social rights,expand the populations access to certain publicgoods and services and ensure regular benefits. Itestablished the right to education, health, work,leisure, security, social security, maternity andchildhood protection and support for those inneed. It also established a minimum wage and theprinciple that ties the definition of the minimumamounts of long-term social security and socialassistance benefits to minimum wage. In relation tofunding, it recognized the importance of educationby increasing the allocation of federal resources tothis area and created a budget specifically for thesocial security system.

The Brazilian state is currently developing adiversified set of public policies, which are

1Jorge Abraho de Castro, Secretaria de Planejamento e Investimentos Estratgicos do Ministrio do Planejamento, Oramento e Gesto (Ministry ofPlanning, Budget and Management, Brazil).2According to Esping-Andersen (1991), The introduction of modern social rights, in turn, weakens the status of individuals as mere merchandise. ForMarshall (1967), social rights correspond to the right to a minimum standard of economic well-being, to full participation in social heritage and to live ina civilized manner in accordance with the standards established in society.


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summarized in figure 1 below. Social policies linkedto social security that aim to reduce and mitigatethe risks and vulnerability to which all individualsliving in a market society are exposed - such asbeing unable to sustain oneself through ones ownefforts due to old age, death of the primary incomeearner, disease or unemployment - are regrouped

under the objective of providing social protection.This category includes a variety of social securityprogrammes and measures (retirement and old-age pensions, maternity-leave, sick-leave andother types of financial aid) for the general publicand civil servants, as well as health care, socialassistance and unemployment insurance.

UN Photo/Pernaca Sudhakaran


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FIGURE1

SECTOR-BASEDANDCROSS-CUTTING

SOCIALPOLICIESIN

BRAZIL(2012)

Health

Socialsecurity:

generalpublicandcivil

service

Socialassistanceand

foodandnutrition

security

Socialinfrastructure

(housing,urbanism,

basicsanitation)

Education

Workandincome

Agrarian

development

Culture,sports

andleisure

CROSS-CUTTINGAGEND

A

SECTOR-BASEDPOLICIES

Racialequality

Gender

equality

Childrenand

adolescents

Elderly

Youth

Solidarityand

social

securityforindividuals

andgroupstoensure

socialrights

and

addressrisks,shocks

andneed

s

Strengthening,useand

fruitionofthecap

acitiesof

individualsand

social

groups

Peoplewith

disabilities

Indigenouspeoples

GLBT

Thehomeless

SOCIALPOLICY

Socialprotection

(socialsecurity)

Socialpromotion

(opportunitiesand

results)


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As for the social promotion objective, it regroupspolicies that aim to guarantee citizens broader andmore equal opportunities to access the resourcesand benefits won by society over the course ofhistory. They include a vast range of measuresfrom the formation and development of citizens(education, access to culture, and labour policies

that seek to provide professional training andregulate the labour market) to the democratizationof access to assets. The latter include policies topromote family farming (access to credit, technicalsupport and agrarian reform), solidarity economy,housing and urban mobility.

Creating equality is related to the idea that theexpansion of the provision of social goods andservices - namely education and access to health care is essential for enabling individuals and/or socialgroups to acquire skills and capacities. This alone,

however, is not enough to guarantee equality. Onemust also ensure that they are able to use these skillsby adopting policies to promote their integrationinto production in both rural and urban areas. Theseare fundamental elements of social promotion, asthey make expanding opportunities and obtainingbetter personal and collective results possible.This goal will only be fulfilled if there is a processto universalize the scope of these policies to reachthe poorest classes.

Furthermore, the Brazilian state is also currentlydeveloping a series of more cross-cutting policiesthat can be classified as social protection or socialpromotion. They include actions to promotegender and racial equality, as well as measuresspecifically designed for the different stages of thelife cycle (for children, adolescents, youth and theelderly) and for people with disabilities, GLBTs andthe homeless.

T H E M A N A G E M E N T ,

O R G A N I Z A T I O N A N DI N S T I T U T I O N A L A P P A R AT U S E SF O R S O C I A L P O L I C Y

To concretize the policies above, a technical/bureaucratic apparatus had to be created to providethe social benefits necessary for responding tosocietys demands. The major challenge here wasthe technical/political capacity each social policysector was required to have in order to set up publicsystems to provide goods and social services. It

is important to highlight that in the policy areasthat advanced the most, the institutions werestructured into nationally organized systems inthe form of either unified or federative systems.Furthermore, it should be noted that institutionalarrangements in Brazil allow for-profit or not-for-profit private entities to provide social goods and

services.

In the area of social protection, the social securitysystem is the longest-standing policy in thecountry, with over eighty years of existence. Thesystem has a considerable amount of resourcesthat are stable over time, as well as explicit accesscriteria and a legal and institutional frameworkthat guarantees the viability of its operations.While the management of the Brazilian pensionscheme - Regime Geral de Previdncia Social(RGPS,General Social Security Regime) - is centralized in

the hands of the federal government, the publicbodies involved in its management are distributedthroughout the different regions. Another policyworth mentioning here is the Regimes Prprios dePrevidncia Social (RPPS, Special Social SecurityRegimes), which provide benefits specifically tocivil servants.

As for health care, which is part of social security,the creation of the Sistema nico de Sade (SUS,Unified Health System) led to the unification ofpublic services in this area and the universalizationof access to them. Furthermore, it decentralizedservice provision by establishing formal pactsamong the different levels of government (federal,state and municipal). After starting off in the1990s with a strong focus on the municipal level,the decentralization process eventually began toput greater emphasis on organizing the servicenetworks at a regional level in an effort to improveaccess to the services and their integration.Provisions exist to ensure the comprehensivenessof the SUSs actions, as well as social participation

in its management. User representatives aredirectly involved in the planning, monitoring andevaluation of its services.

Social assistance is responsible for guaranteeingsome rights and the access of the population inneed to a series of services and cash transferssuch as the Programa de Bolsa Famlia (PBF,Family Allowance Programme) and the Benefciode Prestao Continuada (BPC, Continuous CashBenefit Programme). Coordinated by the federalgovernment, all three levels of government


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participate in the management of the PBF viaa shared management model. Several statesand municipalities have their own cash transferand anti-poverty programmes. In these cases, aprocess for establishing agreements among actorsis necessary to ensure the integration of local andfederal programmes.

As for the provision of social services to thepopulation, the Sistema nico de Assistncia Social(SUAS, Unified Social Assistance System) is in theprocess of being consolidated. Created in 2004, theSUAS is an attempt to overcome chronic under-funding and the need for more state regulation andproduction in order to expand coverage. While themunicipalities are responsible for social assistanceservices, a considerable portion of these servicesare provided in parallel by private entities from awide range of origins, natures and sizes. The strong

presence of private philanthropic institutions in thesector clearly constitutes a challenge to increasingcoordination and synergies in the provision ofsocial assistance services.

In the area of social promotion, for many years,Brazils labour and wage policies were limitedto the provision of social security insurance toworkers employed in the formal sector and civilservants - both contributors to the system. It wasonly in the 1980s that the state began to broadenthe scope of its actions in this area by creatingthe Sistema Nacional de Emprego (SINE, NationalEmployment System), whose mandate is to offerprofessional intermediation services and training.It also instituted unemployment insurance forworkers formally employed by private companies.In the 1990s, the Brazilian state adopted activelabour market policies designed to generate newemployment and income opportunities.

Public education is organized as a federative systemmade up of three subsystems, each with different

responsibilities. In theory, they are supposed tocooperate with one another. The municipal schoolnetwork dominates early childhood education andleads in the provision of elementary education aswell, although state-level schools are responsiblefor a sizeable portion of the spots in elementaryschools. That said, the state-level networks arebecoming increasingly focused on secondaryeducation. Higher education lies basically in thehands of the federal government, but also somestates. Even though the federal government is notresponsible for offering elementary and secondary

education directly, its leadership is crucial forthe configuration of a more cooperative formof federalism. This is fundamental for a policy asdecentralized as that of education, which, in Brazil,leaves much to be desired.

The institutional apparatus of other social

promotion policies are also being strengthened.For example, the area of housing and sanitationnow has a recently created ministry, the Ministriodas Cidades (MCidades, Ministry of Cities), anagency to funds its activities (the Caixa EconmicaFederal bank) and a programme considered toppriority: Minha Casa, Minha Vida (PMCMV, MyHome, My Life). Though relatively new (createdin 2009), the programme has already providedhousing for close to 2 million people. As for thearea of agrarian development, a new schemecalled the Territrios da Cidadania (Territories of

Citizenship) is being developed - although not asa unified system - to manage and organize policyfor the target population of MDA programmes andpolicies in rural areas. It is still in the experimentalphase.

T H E P R I V AT E S E C T O R I NT H E P R O V I S I O N O F G O O D SA N D S O C I A L S E R V I C E S

In Brazil, market forces have always been allowedto participate in the provision of public goodsand services. Such a configuration demands thatthe state regulate the sector to protect service-users, guarantee the stability and continuityof services, and prevent the coexistence ofpublic, philanthropic and corporate sectors frombecoming chaotic. These objectives, however,have not been adequately met in recent years.Clearly, social service providers from the privatesector have taken on a much greater and farmore complex role than could possibly have been

imagined when the 1988 Constitution maintainedthe social area open to private for-profit and non-for-profit entities.

With regards to social protection, the most typicalexample of an area with substantial private sectorparticipation is that of health. Health care in Brazilhas reached a point where it is impossible to designa national policy without taking the private sectorinto account. As paradoxical as it might seem, dueto the explicit and firm recognition of public health


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as a universal social right in the Constitution, theprivate health care sector receives - directly orindirectly - large amounts of public resources,which strengthen this market even further.

In the case of social security, the importance ofprivate pension funds should be highlighted for

both the volume of assets and resources theypossess and the protagonist role they play in thestock market and the management of Brazilslargest companies. In the area of social assistance,one can note that the state provision of services isstill limited, whereas the participation of the privatesector - namely charity institutions - in serviceprovision is quite substantial. The relationshipbetween the two is tense, which constitutes one ofthe greatest challenges to the consolidation of theSUAS.

As for social promotion, the private sector ishighly active in the area of education, namelyhigher education. The majority of post-secondaryeducation programmes are offered by the for-profit private sector. In this case, one of the greatestsuccesses in recent times is the Universidade paraTodos (Prouni, University for All programme).Created by the Ministry of Education in 2004, theprogramme awards full or partial (50 percent)tuition scholarships to Brazilian students who donot have a graduate degree and are enrolled inundergraduate programmes or specific trainingcourses at private higher education institutions.Prouni emerged as a result of alterations to thestate regulatory and fiscal framework for private

higher education institutions.

In the field of labour and income, one shouldhighlight tax revenues transferred to the extensiveand consolidated private sector network offeringprofessional training and technical support knownas the Sistema S (the S System). This system

is composed of institutions that represent thevarious professional categories in the productivesector: industry (SENAI), services (SESC), commerce(SENAC), agriculture (SENAR), transportation(SENAT) and micro and small businesses (Sebrae). Itaims to contribute to and promote the well-beingand income opportunities of the professionals oftheir respective areas.

T H E S C O P E O F B R A Z I L I A N

S O C I A L P O L I C Y Currently, the scope of Brazilian social policy isnotable for the wide range of benefits it offers dailyto millions of citizens through the programmesand actions of various social policies. These policiesare executed by state bodies through three basictypes of actions and programmes: (i) guaranteedincome; (ii) guaranteed supply of social goodsand services; and (iii) regulation. The first tworely mainly on state funding, while the last oneinvolves less expenditures and more non-financial

resources (institutional, political, technical andadministrative) in order to regulate the operationsof economic agents. These types of interventionare explained in detail in table 1 below.

UN Photo/Eskinder Debebe


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BASIC TYPES TRANSFERS, GOODS AND SERVICES 2002(1) 2014(1)

GUARANTEEDINCOME

SOCIAL ASSISTANCE

PBF beneficiaries (families)2 3.6 million (2003) 14.0 million

BPC and RMV beneficiaries3 2.3 million 4.3 million

SOCIAL SECURITY

Beneficiaries of the RGPS4 18.9 million 27.8 millionBeneficiaries of the RPPS - 4.3 million

WORK AND INCOME

Unemployment insurance beneficiaries 4.8 million 8.9 million (2013)

Abono Salarial (Salary Bonus) beneficiaries 6.5 million 21.3 million (2013)

GUARANTEEDSUPPLY OF GOODS

AND SERVICES

HEALTH

Outpatient procedures 1,883.5 million 3,794.2 million (2013)

Primary health care services 868.0 million 1,200.8 million (2013)

Specialized health care services 146.4 million 447.0 million (2013)

Hospitalization for elective procedures 1.5 million 2.2 million

Hospitalization for emergency procedures5

10.6 million 8.5 millionEDUCATION6

Early childhood education enrolments 4.4 million 5.5 million

Regular elementary school enrolments7 33.3 million 24 million

Full-time elementary school enrolments8 1.3 million (2010) 4.4 million

Regular high school enrolments 7.6 million 7.2 million

School meals student beneficiaries 36.9 million 42.2 million

School books purchased 96.0 million (2005) 135.5 million

School buses purchased (Caminho da Escola pro-gramme)

2,391 (2008) 4,078

Enrolments in vocational training programmes inhigh schools9 279,143 1.7 million

Higher education enrolments 1.1 million 2.4 million (2013)

Fies contracts signed 65,921 732,348

Prouni scholarships provided 95,612 (2005) 223,493

URBAN DEVELOPMENT

Housing units from PMCMV10 - 2.0 million

AGRARIAN DEVELOPMENT

Pronaf contracts 0.9 million1.5 million

(2014/2015)

Source: MEC, MS, MDS, MPS, MCidades, MDA, MTE.3

Notes:1. When data was unavailable for 2002 or 2014, data from the year in parentheses was used.2. In 2002, other cash transfer programmes existed (Bolsa Escola/School Grant, Bolsa Alimentao/Food Grant, Auxlio Gas/Gas Subsidy). ThePBF was created in 2003.3. Renda Mensal Vitalcia (RMV, Life-long Monthly Income).4. Benefits issued every year in D ecember by the RGPS.5. The decline in the number of hospitalizations for emergency procedures is due to a change in the SUSs model, which puts greater emphasison outpatient health care, especially primary health care, thereby increasing its capacity to resolve health problems.6. Enrolment figures refer to public schools only. The programmes referred to are: Programa Nacional de Alimentao Escolar (PNAE, NationalSchool Meals Programme); Programa Nacional do Livro Didtico (PNLD, National School Book Programme); Programa Nacional de Apoio aoTransporte do Escolar (PNATE, National Support Programme for S chool Transportation); Fundo de Financiamento Estudantil (Fies, StudentFinancing Fund); and the Programa Universidade para Todos (Prouni, University for All Programme).7. The decrease in enrolment figures is due to improvements in the flow of children from one grade to the next and a decline in the number ofchildren and adolescents in the period analyzed (due to changes at the basis of the Brazilian age pyramid).8. These enrolments are a sub-group of enrolments in regular elementary schools.9. Taking into account the three modes: integrated, simultaneous and subsequent.4

10. The PMCMV was created in 2009.

TABLE 1BASIC TYPES OF SOCIAL POLICY INTERVENTIONS IN BRAZIL (2010)

3The acronyms listed are for the following Brazilian ministries: Education (MEC); Health (MS); S ocial Development (MDS); Social Security (MPS);Cities (MCidades); Agrarian Development (MDA); Labour and Employment (MTE).4In the integrated mode, there is only one registration system and the students attend courses whose programme combines elements from thehigh school curriculum with professional training activities. In the simultaneous mode, the technical course is complementary to high school andstudents are registered in two places. In the subsequent mode, students enroll in the technical course after they graduate from high school.


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The number of beneficiaries of the guaranteedincome policies is quite significant, as can beseen in table 1. For example, the RGPS and theRPPS alone distribute approximately 31.7 millionbenefits on a monthly basis, a large proportionof which are higher than one minimum wage.They absorb 11.5 percent of GDP. Also, the

BPC provides benefits to 4.3 million people, ofwhich 2.3 million are people with disabilitiesand 2 million are elderly. As for the Bolsa Famliaprogramme, its importance resides primarilyin the size of its beneficiary population (over14 million families), and it provides resourceson an ongoing basis. It is estimated that thisprogramme reaches close to 50 million people.

These policies have significantly increasedthe relative weight of cash transfers in thecomposition of family income. IPEA data

(2010f) presented in chart 1 below show thatthe transfers from guaranteed income policies

went from 9.5 percent of family income in 1988to 19.1 percent in 2010. This was due to the newconstitutional provisions coming into effect andto the major impact of the policy to graduallyraise minimum wage, which will be discussedshortly.5The significant expansion of the coverageof targeted cash transfer programmes, such as

the PBF and similar programmes implementedby lower levels of government, was also a majorcontributing factor.

While employment income continues to be themain source of revenue for Brazilian families, theexpansion of the Brazilian social security andguaranteed income system helped compensatethe losses of the 1980s and 1990s and restorefamily incomes. The increase of cash transfersas a portion of family income has also beenaccompanied by a considerable augmentation of

the percentage of families that benefit from thesesocial policies.

CHART 1COMPOSITION OF FAMILY INCOME IN BRAZIL (1988, 1998 AND 2008)

86.0%

9.5%4.4%

79.3%

15.6%

5.2%

76.5%

19.3%

4.1%

0%

25%

50%

75%

100%

Employment income Cash transfers Other income

%o

ftotalincome

1988

1998

2008

Source: IPEA, 2010f.

5

The minimum monthly amount of social security, BPC and certain unemployment insurance benefits are tied to minimum wage.


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In relation to guaranteeing the provision ofgoods and social services, it is worth highlightingthe educational policy designed to includeincreasingly large population groups in schoolsand universities in conditions that - though still farfrom ideal - have improved in recent years. In thecase of health policies, with the introduction of

the Sade da Famlia(Family Health Programme),health care coverage expanded significantly,especially in municipalities and districts thatare far from large urban centres. In terms ofbenefits, the SUS carries out, on average, 3.7billion outpatient procedures per year; 1.2 billionprimary health care consultations and 10.7 millionhospitalizations. The SUS has also contributed,with varying degrees of success, to increasingaccess to medicines and treatment.

Finally, there is regulation. Here, it is worth

highlighting Brazils minimum wage (MW) policy,which not only influences the labour market, butis also used to determine the amount of socialsecurity (old age and retirement pensions), social

assistance and unemployment benefits. Therehave been important changes in this area overthe past decade. Negotiations held in 2007 ledto the adoption of a policy to gradually increaseminimum wage, which came into effect in 2011.MW is adjusted annually based on a formula thatuses the inflation rate from the previous year and

the GDP growth rate from the two previous years.

Table 2 below shows the influence of minimumwage on the Brazilian population. In relation tostate action, when we look at the monthly benefitsand wages tied to minimum wage and paiddirectly by the state to beneficiaries and publicservants, results from 2013 indicate that MW hada direct influence on 25.8 million people. Whenone considers that each beneficiary or worker isresponsible for a certain number of people whobelong to his or her family, this figure increases

to 79.5 million people - or 39 percent of the entireBrazilian population. Furthermore, when added alltogether, total expenditure on social policy cashtransfers represents 4.5 percent of Brazils GDP.

TABLE 2POPULATION AFFECTED BY THE MINIMUM WAGE POLICY (1995/2013)

DESCRIPTION BENEFITS YEARINDIVIDUALS

(MILLIONS)

FAMILY SIZE(NUMBER OF

INDIVIDUALS)

POPULATION(MILLIONS)

PERCENTAGEOF THE

POPULATION

State action1

Socialpolicy

Social security andsocial assistance2

1995 9.3 3.2 29.8 20%

UnemploymentInsurance3

2013 17.7 2.8 49.6 25%

1995 4.7 4.4 20.7 14%

2013 7.4 3.7 27.4 14%

Public sector employment41995 0.3 0.3 4.4 1.3

2013 0.7 3.7 2.6 1%

Total

1995 14.3 51.8 34%

2013 25.8 79.5 39%

Labourmarket

Direct regulation51995 6,8 6.8 4.4 29.9

2013 8.9 3.7 32.9 16%

Total1995 21.1 81.7 54%

2013 34.7 112.5 56%

Source: Data from PNAD/ IBGE, MTE and MPS.6Prepared by the author.Notes:1 Monthly benefits or wages whose value is fixed to the minimum wage and paid directly by the state.2 Number of beneficiaries (RGPS and RPPS) receiving benefits set at one minimum wage.3Formally employed workers: total workers receiving unemployment insurance benefits whose monthly amount varies from one to three times

the minimum wage.4Civil servants and military employees who earn minimum wage.5Employees, domestic workers, self-employed or employers who earn minimum wage.

6National Household Sample Survey (PNAD)/ Brazilian Institute of Geography and Statistics (IBGE); Ministrio do Trabalho e Emprego/Secretaria de polticas pblicas de emprego (Ministry of Labour and Employment/Secretariat of Public Policies on Employment); and AEPS:infologo. Base de dados histricos da previdncia social, Ministrio da Previdncia Social (Ministry of S ocial Security).


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Data in table 2 show the growing influence ofminimum wage regulation on the labour market. Ithad a direct impact on the jobs of 8.9 million peoplein 2013, which represents close to 10 percent ofthe employed economically active population.Also, when one considers that each beneficiaryis responsible for a group of people, this level of

influence rises to 17 percent of the population.

Altogether, the regulation of minimum wage hadan impact on more people: the number of peopleaffected directly went from 21.1 million in 1995to 34.7 million in 2013. Even so, its importancein relative terms remained constant during theperiod, at around 55 percent of the populationof Brazil. It is important to point out that thebroadening of its influence was largely due to stateaction, which went from affecting 14.3 million

people in 1995 to 25.8 million in 2013.

G O V E R N M E N T E X P E N D I T U R EA N D F U N D I N G F O R S O C I A LP O L I C Y

Expanding and maintaining the social benefitsdescribed above required mobilizing adequatefinancial resources to cover the cost of providingthem. This has led to a steady rise in socialspending in the last thirty years, especially since

the policies foreseen in the 1988 Constitutionbegan to be implemented. Data in chart 2 reflectsthe tendency for Public Social Expenditure (PSE)7

to grow: it increased 6.0 percentage points ofGDP, from 19.2 percent in 1995 to 25.2 percentin 2010.

As can be observed in chart 2, in 2010, socialsecurity benefits for the general population andfor civil servants, health care, social assistance,education, and housing and sanitation formedthe core of social policy. Together, these areasabsorbed approximately 95 percent of socialspending in the 1995-2010 period.

In chart 3, government expenditure isanalyzed according to the type of socialpolicy interventions (cash transfers, goods andservices) and an estimate of spending on the

administration and management of the system(taking federal government expenditure as abasis). The results of this analysis show thatincome guarantee systems (cash transfers)absorb a significant portion of financialresources: 51.9 percent of social spending(13.1 percent of GDP) in 2008. The provision ofgoods and services took up 43.4 percent (10.9percent of GDP), whereas the administrationand management of the system represented 4.7percent of expenditures (1.2 percent of GDP).

Source: Castro, 2008 and SI DOR/MPOG.

7Public Social Expenditure (Gasto Pblico Social, GPS) is made up of the gross financial resources used by the public sector to respond to socialdemands. It corresponds to the costs of goods and ser vices including capital goods and cash transfers, without deducing the amounts thatcorrespond to the recovery, depreciation or amortization of investments in stocks or the recovery of the principal of earlier loans.

CHART 2PUBLIC SOCIAL EXPENDITURE AND AREAS OF INTERVENTION AS PERCENTAGES OF GDP

19.2%

21.9%

25.2%

0%

10%

20%

30%

Total PSE

PercentageofGDP

1995 2005 2010

7.4

4.43.8

1.4

5.0

0.91.8

0.5

-

5.0

10.0

Social

security -

RGPS

Civil servant

benefits

Health Social

assistance

Education Work and

income

Housing and

sanitation

Others

PercentageofGDP

2010

1995 2005 2010

2010

%

%

% %%

%

%

%

%

%


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CHART 3GOVERNMENT SPENDING ON BASIC SOCIAL POLICIES AND THE ADMINISTRATION OFTHESE POLICIES AS A PERCENTAGE OF TOTAL SOCIAL SPENDING (2008)

4.7%

51.9%43.4%

0%

25%

50%

75%

100%

Administration andmanagement of social policies

Guaranteed income - cashtransfers

Guaranteed goods andservices

PercentageofPSE

Source: Castro, 2008 and S IDOR/MPOG.

With regards to the funding structure for socialpolicies in Brazil, it is important to mention thechanges introduced by the 1988 Constitution toincrease resources from a more diversified taxbase. These changes, combined with obligations tospend certain funds on specific social programmes,were meant to improve the material conditionsfor ensuring the effective enjoyment of the rightsrelated to social security and universalization. Thereis now a certain level of diversity in the funding

sources for social spending, and a predominance

of social contributions in the final composition ofthe budget for social programmes, especially thatof the federal government. Furthermore, thereare important differences in the way each specificarea is funded. For example, social security, labourand housing are largely financed by contributions,whereas education and health are more dependenton tax revenues. Chart 4 gives a quick overview ofthe volume of PSE in 2010, which correspondedto close to 73 percent of the tax-to-GDP ratio

that year.

CHART 4PUBLIC SOCIAL EXPENDITURE AND THE TAX-TO-GDP RATIO (2010)

25.2

34.7

0.0

40.0

PSE (2010) Tax-to-GDP

ratio (2010)

PercentageofGDP

32.0

25.023.0 23.0 22.0 22.0 21.0 21.0 21.0 21.0

0

40

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th

Percentageofincome

Tax-to-GDP ratio for each tenth of income (2008-2009)

%

%

%%

%% % % %

% % % %

%

Source: Castro, 2012; Silveira and others, 2011.


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Two aspects of the current funding systemconstitute serious challenges for advancing Brazilssocial policy. One is the anachronistic nature ofthe current federative pact and the other is theregressiveness of the tax burden in Brazil, which isvisible in chart 4.

The regressive tax system has harmful effectson income distribution. Data in chart 4 revealsthat the tax burden is much greater for those inthe lowest income brackets (32 percent for thefirst tenth of income) and smaller for those in thehighest income brackets (21 percent for the lasttenth of income). This is due to the enormousimbalance between the volume collected throughdirect taxation (income and property), which tendsto be progressive, and that from indirect taxation(consumption and the circulation of goods), whichtends to be regressive. Even if the onus of direct

taxes increases as income levels go up, in the end,this is not enough to counteract the strong impactthat indirect taxation has on the incomes of thepoorest families.

Therefore, the current configuration of the Braziliantax system seriously limits the capacity of socialpolicies to alter the social reality in the country.After all, even if the social policies do protect themost vulnerable citizens, their redistributive effectsare partly compromised because the beneficiariesof social policies are, to a certain extent, alsothe main funders of these policies. From thisperspective, the dichotomy between taxpayersand non taxpayers becomes devoid of meaning,as everyone is a taxpayer and even the poorestsustain the tax system due to indirect taxation.

S O C I A L P O L I C Y A N D T H EE C O N O M Y : C O N N E C T I O N S

Social policy directly influences the economy: bothsupply and demand. Depending on the extent of its

coverage and the quality of the goods and servicesprovided, it can become an important elementto consider in relation to the rate of expansion of

activity (economic growth) and the quality of thatexpansion (increased productivity).8

Aggregate demand (consumption, governmentexpenditure, investments and net exports)plays a prominent role in the growth process.Government actions are an important element in

defining demand: the greater the governmentscommitment to social areas is, the greater theimportance attributed to social expenditure willbe. In other words, aggregate demand is directlyaffected when expenditure on cash transfersand providing goods and social services is ableto maintain/alter the personal and functionaldistribution of income,9 which has implicationsfor the consumption patterns of individuals,families and groups. In heterogeneous societies,the greater the revenues being managed anddestined to the poorest classes, the greater their

capacity to alter these patterns will be, therebycreating the possibility of increasing aggregatedemand and expanding the domestic consumermarket.10 It is also important for the economy toguarantee the supply of goods and social services,since their implementation creates the need toincrease spending on personnel; construction; themaintenance of equipment in schools, hospitalsand health clinics; and purchasing school books,medicines and other strategic materials.

According to Kaleckis (1954) model, certainrestrictions must be taken into account.Improvements in income distribution and theincrease in workers demands for goods will raiseaggregate demand to a higher level. However,this will only bring sustainable development if thecapacity to provide these goods exists. In otherwords, this mechanism only works if there is idlecapacity to respond to the demand. If, however,the economy is in full employment, such a growthin demand will create inflationary pressures andeconomic growth will not occur. As a result, the

advances of the income distribution process will beannulled, as inflation will erode workers real wages.One solution would be greater demand for the

8This kind of approach is based on Kalecki (1954), Kalecki (1974), Thirlwall (2005) and Tavares (1998a). More recently, the work of the IPEA (2010e),Amitrano (2011) and Bruno and others (2009) is interesting, particularly their efforts to develop a specific approach to the study of medium andlong-term economic growth that takes into account elements of supply, demand and institutional factors, as well as the interactions among them.9According to ECLAC (2000), Public social spending is the main instrument that the State uses to influence the distribution of income. []Its distributive effects will depend on the scale of social spending, its distribution and financing, and the effi ciency with which the resourcesconcerned are used.10 The hypothesis that what is received as basic income is turned into spending on popular consumer goods is the equivalent of saying workersspend every penny they earn. A slightly different version would be the poor spend every penny they earn. Provided we accept the principle ofeffective demand (that is, the determination of income and product by macroeconomic spending variables), this hypothesis will lead us to attri-bute causality to social expenditure. Causality here is related to short term variations in social spending, which co-determine [sic] the income ofpoor families and sustain the production and popular consumption of goods-salaries. (Delgado and Theodoro, 2005)


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foreign products needed to respond to demand,which would undoubtedly lead to an increase inimports in developing countries whose foreignreserves tend to be scarce. This pressure coulddeepen imbalances in the balance of payments,which would have negative repercussions on thecountry and its growth process.

On the aggregate supply side, one can arguethat social policy - especially in relation to thegoal of broadening the populations skills,capacity and integration into production - isalso key for achieving technical progress andincreasing labour productivity. These factors aredecisive for economic growth, raising wages andreducing poverty. Furthermore, they can bringimprovements in income distribution and declinesin inequality levels, provided that they raiseemployment income.11

This analysis of the process on the theoretical levelmust be linked to the real world, while taking intoaccount each countrys stage of development. Theuse of the model will produce different resultsaccording to the situation in each country. In thefollowing section, we will examine the case ofBrazil.

B R A Z I L I A N S O C I A L P O L I C Y :I N C O M E D I S T R I B U T I O N A N DE C O N O M I C G R O W T H

Government action in the form of expenditureon social policies and market regulation areimportant elements for the distribution of income(personal and functional) and key components ofaggregate demand. They are thus central to thepromotion of economic growth.

Moreover, the expectation that the economiccycle will bring growth is due to the fact that themajority of social spending goes to cash transfers

to the lower social classes, the purchases ofgoods and services, and the remuneration of civil

servants who spend on the market to supportthemselves and their families. This process fuels acycle that multiplies income, as people from thesesocial classes tend to consume less importedgoods and save less. Their likelihood to consumemore and mainly national products leads toincreases in sales, production and job creation

in the country. Thus, government spending onsocial policy can be considered strictly economicin nature in two ways: as a multiplier of growth ofGDP and in terms of family income.

Impacts on income distribution

It is important to emphasize that the literature onthis issue which concentrates more on the debateon personal (and not functional) distribution shows that both cash transfers and the provisionof goods and services affect the lowest income

segments of the population the most. Silveiraand others (2011), for example, addressed theeffects of state social expenditure on income byanalyzing five stages of income. The first stage,called original income, consists of income of aprivate nature and the last, called final income,reflects the impacts of all cash transfers, goodsand social services provided by social policies,as well as direct and indirect taxation of income.Simulations by these researchers (in table 3)clearly confirm that social policy spending playsan important role in distribution. It mainly altersthe income of the lowest income group (thefirst quintile), which initially appropriates onlyone percent of all income. With social spending,however, this proportion grows to 4.2 percent,which is still a far cry from an equal distribution.The second and third quintiles also experiencegains, but to a lesser extent. In spite of theimportance of government social spending todayand the decrease in inequality, column (a) of chart5 shows how unequal income distribution in Brazilstill is: 63.5 percent of total income continues to

be held by the 20 percent of the population withthe highest income.

The current configuration of the Brazilian tax systemseriously limits the capacity of social policies to alterthe social reality in the country. Their redistributiveeffects are partly compromised because thebeneficiaries of social policies are, to a certain extent,

also the main funders of these policies.11 In the early 1990s, ECLAC was already expressing concern with this issue: In order to improve productivity in underdeveloped sectors, andas a complement to aggregated policies, it seems essential that certain specific actions be undertaken, including credit, commercializationand technical assistance programmes, as well as massive investment in capacity-building and training, among others. The effort to achievetechnological modernization is crucial, not only due to the demands of international competitiveness, but also because of the need to improvethe quality of jobs and wage levels (ECLAC, 1992).


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STATISTICS

PERCENTAGE OF TOTAL INCOME APPROPRIATED BY EACH QUINTILE

ORIGINALINCOME1

INITIALINCOME2

AVAILABLEINCOME3

INCOME AFTERTAXES4

FINALINCOME5

Quintiles

1st 1.0 2.4 2.6 2.2 4.2

2nd 4.6 5.9 6.2 5.7 7.2

3rd 9.4 10.4 10.9 10.3 10.4

4th 18.1 18.3 18.8 18.3 14.7

5th 67.0 63.0 61.6 63.5 63.5

Gini coeffi cient

(%)

64.3 59.1 57.6 59.8 50.0

Average (BRL

Jan. 2009)

596.49 733.04 662.38 561.56 663.50

Source: Silveira and others, 2011.Notes:1 original income is income obtained from employment, sales, interest, rent, etc. (prior to state intervention);2 initial income is original income plus retirement or other pensions, allowances, grants, unemployment insurance orothers;3available income is the initial income minus direct taxes;4income after taxes is available income minus indirect taxes;5final income is income after taxes plus state spending on health and education.12

TABLE 3DISTRIBUTION OF PER CAPITA HOUSEHOLD MONETARY INCOME FOR DIFFERENT STAGESOF INCOME, BY INCOME QUINTILES (2008-2009)

Another important aspect is that these resultscould be far better if indirect taxes were lessregressive. Note that in part (b) of chart 5, income

after taxes decreases for the population in the firstfour quintiles, but increases for the those in thequintile with the highest income.

12See footnote number 13 for an explanation of the methodology used to incorporate state spending on health and education.



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CHART 5DISTRIBUTION OF PER CAPITA HOUSEHOLD MONETARY INCOME FOR DIFFERENTSTAGES OF INCOME, BY INCOME QUINTILES (2008-2009)

1.04.6

9.4

18.1

67.0

4.27.2

10.4

14.7

63.5

-

20.0

40.0

60.0

80.0

1st (low) 2nd 3rd 4th 5th (high)

Original (initial) income Final income

Income brackets (by quintiles)

2.66.2

10.9

18.8

61.6

2.25.7

10.3

18.3

63.5

-

20.0

40.0

60.0

80.0

1st (low) 2nd 3rd 4th 5th (high)

Available income Income after taxes

Income brackets (by quintiles)

(a) Complete income redistribution cycle

(b) Impact of indirect

Source: Silveira and others, 2011.

%

%

%

%

%

%

% %

%

%

%

%

%%

%%

% %

%%

%%

%%

%

%

%

%


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The results obtained show how regressive theBrazilian tax structure is and how this leads toserious losses in income and well-being for thelow-income population, which partially cancels thepositive effects of social spending on distribution.The Gini coeffi cient varies considerably from oneincome quintile to another, falling when spending

on cash transfers and direct taxation come onthe scene, but rising again with indirect taxation,which restores inequality to previous levels. In theend, spending on goods and services is highlydistributive and brings the Gini index downconsiderably.

Another study carried out to identify the effectsof social spending on income distribution wasthat of the IPEA (2010d). It obtained the incomemultiplier for each group of families analyzedby combining the head of households place of

residence and education level. With this data,

researchers were able to determine the variation inincome distribution associated with each type ofexpenditure on social policy.

The results of their simulation (table 4) indicatethat in the case of health and education,once the consumption of these services is

incorporated into family income,13they are bothhighly progressive: an increase of one percentof GDP in spending on health care leads to a 1.5percent reduction in the Gini index. In the case ofspending on education, the decline is slightly less:1.09 percent. This is due to the greater presenceof higher income families at higher educationlevels. As for cash transfers, increased spendingon the BPC and the PBF clearly contribute themost to the drop in inequality: 2.33 percent and2.15 percent, respectively. Social security (RGPS)also has beneficial effects on inequality, as it

reduced the index by 1.2 percent.

TABLE 4INCOME INEQUALITY AMONG GROUPS OF FAMILIES BASED ON TYPES OF EXPENDITURE(2006)

TYPE OF EXPENDITUREINITIAL INCOME

GINI G0

GINI AMONG

GROUPS G1

GINI VARIATION IN

RELATION TO INITIAL

INCOME = G1 G0 / G0

Total initial income 0.3805 0.3805 -

Continuous cash benefit (BPC) 0.3716 -2.33%Bolsa Famlia (PBF) 0.3723 -2.15%

Health 0.3749 -1.47%

RGPS 0.3759 -1.22%

Education 0.3764 -1.09%

Investiment in construction 0.3806 0.04%

Commodity exports 0.3807 0.05%

Interest payments on publicdebt

0.3809 0.11%

Source: IPEA, 2010d. Prepared by the author.

As for spending on areas other than social policy,such as investments in construction and theproduction of commodities for export, their effectsare practically neutral. Although they generategrowth, they reinforce the high levels of incomeinequality in Brazil. Spending on interest paymentson debt is regressive.

The positive results of social expenditure interms of income distribution can be more clearly

understood when one examines, for example, thedistribution effects of spending on education once

it is incorporated into family income, as shown inchart 6. According to these results, the familiesthat benefit the most from increased spending onpublic education are those in rural areas, especiallythe poorest ones. Families with less than one yearof formal schooling tend to be affected threetimes more by increased government spendingon education than ones with higher levels ofeducation and income. Part of this result can beexplained by the fact that children from middle

and upper class families in Brazil usually do notattend public schools.

13To incorporate these services into the incomes of beneficiary families, one must factor in government spending on these services becauseit behaves like a transfer to the families that consume public education and health. In the end, government consumption is not truly its own,but rather that of the families that benefit from the public services it provides. Failure to incorporate government spending will affect thecomparison of the impacts of the aggregates studied on distribution and lead the effects of direct income transfers to be overestimated and theimpact of access to goods and social ser vices to be underestimated.


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CHART 6DISTRIBUTION EFFECTS OF PUBLIC EXPENDITURE ON EDUCATION (2006)


Therefore, this study demonstrates that each socialpolicy contributes significantly to the decline ininequality. For sake of comparison, from 2003 to2008 in Brazil, income inequality (measured bythe Gini index) improved at an average rate of-1.3 percent a year. In other words, some of themore progressive social spending - if expanded- can contribute substantially to reducing theconcentration of income in Brazil.

The impacts of economic growth (on GDP and

family income)

In another recent study by the IPEA (2010), inorder to examine the impacts of social spendingon economic growth (GDP) and family income,

researchers simulated expenditure shocks forcertain types of social spending and reconstructedthe economic cycle using a Social AccountingMatrix (SAM) for Brazil for 2006. This methodologywas used to determine the multiplier effects ofsocial spending on the economic cycle.

Figure 2 presents a simplified representationof the results. A hypothetical increase of onepercent of GDP in social spending was found togenerate a multiplier of GDP of approximately

1.37 percent. This means that every BrazilianReal (BRL 1) the government spends on socialpolicy can generate BRL 1.37 in growth of theGDP by the time the economic cycle has beencompleted.14

14According to the IPEA (2010d): Using the economic aggregates of the IBGEs National Accounts System for 2006, the average multiplier ofautonomous spending in general (investments, exports and government expenditure) was 1.57. In other words, for every BRL 1 invested - inresponse to external demand and spent by government - an additional BRL 1.57 of GDP would be generated. Said differently, every expenditureequal to one percent of GDP will provoke on average a 1.57 percent growth in GDP, only through the income multiplying process mentionedabove, if all other conditions remain constant. In regards to family income, which is a more suitable unit for analyzing the well-being of Brazil-ians, the average multiplier associated to autonomous expenditure is 1.17 percent. This means that when one percent of GDP is generated byan increase in investment, exports or government spending, families incomes will increase by an average of 1.17 percent.


6.0%5.0%

4.2% 3.8% 3.5%2.2%

0%

5%

10%

under 1year

1 to 3 4 to 7 8 to 10 11 to 14 15 or more

(a)

Rural

Variation induced by spending 1% of GDP on education

4.0% 3.6% 3.4% 3.1% 2.7%1.9%

0%

5%

10%

under 1year

1 to 3 4 to 7 8 to 10 11 to 14 15 or more

(b)

Urban

Variation induced by spending 1% of GDP on education


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FIGURE

2

THEMULTIPLIEREFFECTO

FSOCIALSPENDING

ON

INCOMEANDTHEECONOMY

Aggregatedemand

Circuitofin

fluenceontheeconomy

Consumption(family,groupand

individualconsumptionpatterns)

Publicinvestment

(expansion

ofsocialinfrastructure)

Results

Social

policy

PSE(25.2%o

f

GDP-2010)

Intermediateconsumption

(wages,goods

andservices,etc.)

=growthof1

.37%

inGDP

=growthof1

.85%

infamilyincomes.

Multiplier

effect

Hypothetical

increaseof1%o

f

GDPinPSE

Shockin

spending

Nationaltaxsystem

56%o

fsocialexpenditure

returnstothestatethroughtaxesandcontr

ibutions

Government

expenditure

Leakage

(Taxeffect)


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Another important finding was on what happenswith taxes and the social contributions to thecountrys tax system. The social accounting matrixshowed that 56 percent of the amount spent onsocial policies returns to government coffers in theform of taxes and social contributions after goingthrough the entire income multiplication process

that social spending itself engenders.15 Thisdemonstrates that the multiplier effect on GDPallows government revenues to increase and partof social spending to pay for itself in the future.

The results obtained from analyzing the economiccycle for each social area separately are displayedin chart 7. They illustrate that some areas have a fargreater multiplier effect on GDP than others. Theareas of health and education, for example, havethe greatest multiplier effects, and spending on

RPPS, the lowest. Thus, expenditure on some socialareas is better for economic growth than others.

When the results from simulations on spendingin social areas are compared to those for othersectors (civil construction, commodities for exportand interest on debt), one finds that spending

on education and health continues to have thegreatest multiplier effect. In this sense, the PBF andthe BPC are much closer to commodity exports. Onthe other hand, the results also reveal that payinginterest on debt is bad for growth, as its multipliereffect is the lowest.

These results confirm, then, that the main areas ofsocial expenditure are important for the dynamicsof the national economy, primarily due to theireffects on the domestic market.

CHART 7MULTIPLIER EFFECT OF SPENDING ON SOCIAL POLICY AND OTHER SELECTED AREASON GDP (2006)


In a recent study, Neri and others (2013) foundmore favourable results for the PBF, which nowtakes the lead as the cash transfer with thelargest multiplier effect: the simulation showedthat a marginal shock of BRL 1 spent on the PBFwould increase GDP by BRL 1.78. In other words,

if supply were perfectly elastic and the otherconditions were met, spending an additionalone percent of GDP on the PBF would generatea 1.78 percent increase in economic activity.The BPC, unemployment insurance and salarybonuses are next in line and all have multipliershigher than one. Social security transfers -both the RGPS or RPPS - come in last place,with multiplier effects of less than one. Usingmore recent and disaggregated data produces

different results, which are even more positivefor the PBF.

With regards to family income, the simulationsdemonstrated that increasing spending on thesocial programmes and policies listed below by

one percent of GDP raises family income 1.85percent on average. It is worth recalling thatfamily income constituted close to 81 percentof GDP in 2006. The results for family income foreach of the social areas in chart 8 produced verydifferent numbers from the previous ones. Inthis case, cash transfers are considerably higherthan the others, and spending on the PBF andBPC is much more important than other socialexpenditures to family income.

15Assuming the elasticity of GDP of tax revenues is equal to one (1). This elasticity was greater than one in recent years, which would increase thepercentage of return to public coffers even more.

1.85 1.701.44 1.38 1.23

0.88

0.0

3.0

Education Health PBF BPC RGPS RPPS

Social areas

1.541.40

0.71

0.0

3.0

Construction Commodity

exports

Interest on public

debt

Others


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CHART 8THE MULTIPLIER EFFECT OF EXPENDITURE ON SOCIAL AREAS AND OTHER SELECTEDAREAS ON FAMILY INCOME (2006)


When one compares the results of the simulationsfor spending on social policy areas with othersectors (such as construction, the production ofcommodities for export and interest paymentson debt), one finds that spending on othersectors has less impact on family income thanthat on social policy does. Therefore, the findingsdemonstrate that spending on the main areas ofsocial policy is highly important to family income.

Even so, as the IPEA (2010d) points out, it isessential to highlight that:

It is not a question of setting social expenditureagainst other expenditures, since each one plays aspecific role in the social and economic dynamicsof the country. In the end, one of the outcomesof investment is precisely the renovation of idlecapacity, which is a dynamic effect that has notbeen incorporated into our model, or only as anassumption. Also, in the case of exports, accessto international currencies and the gradualaccumulation of foreign reserves have shown

themselves to be of utmost importance for thestabilization of economic cycles in Brazil and,thus, for the stabilization of social expenditureitself. The issue here is to show that the ideathat social spending is useless to the economy issimply not true.

Combined effects: distribution and growth

When only government spending on Braziliansocial policy was considered, the IPEAsfindings (2010d) were positive in relation to the

impacts of expenditure on educational goodsand services, health care and especially cashtransfers to the poorest classes on distributionand growth. Chart 9 displays the results ofcross-referencing the data: the vertical axisrepresents the percentage of variation in GDPbrought about by an increase of one percentin spending on various social and other areas.The horizontal axis shows the percentage ofvariation in the adjusted Gini index resultingfrom the same shock.

Families with less than one year of formal schoolingtend to be affected three times more by increasedgovernment spending on education than ones withhigher levels of education and income.

1.67 1.44

2.25 2.20 2.101.86

0.0

3.0

Education Health PBF BPC RGPS RPPS

Social areas

1.14 1.041.34

0.0

3.0

Con st ru ct ion Com mo dit yexports

Interest on publicdebt

Others


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CHART 9COMBINED EFFECTS OF SPENDING ON SOCIAL AND OTHER AREAS ON ECONOMICGROWTH AND INCOME DISTRIBUTION (2006)

BPCPBF

Health

RGPS

Education

Commodity exports

Interest on public debt

0.00%

0.50%

1.00%

1.50%

2.00%

-2.50% -1.50% -0.50% 0.50% 1.50% 2.50%

VariationinGDP

Variation in Gini

Investment in

construction(I) (II)

(III) (IV)

Source: IPEA, 2010d. Prepared by the author

If we assume that one of the goals of nationaldevelopment is to combine greater economicgrowth with less income inequality, all of theexpenditures in the top left quadrant (I) contributeto this ideal. There is absolutely no trade offbetween growth and equality. On the contrary,increased expenditure on public health services

and education generates positive outcomes interms of both growth and income distribution.Spending more on the PBF and the BPC, forexample, produces a large increase in GDP and amajor decline in inequality simultaneously. TheRGPS falls a bit behind in both aspects, but alsoplays a positive role in this sense.

Quadrant (II) shows that increased investmentsin the construction and agricultural commodityexport sectors promote growth in GDP, but theyalso raise the level of inequality. An increase

in interest payments, as seen in quadrant (IV),contribute little to growth and increase incomeconcentration, thus appearing as the worst kind ofexpenditure that a government can make.

These results are important for demonstratingthat by fulfilling its central purpose of providing

social protection and promotion, socialspending is also a key element in the dynamicsof the national economy, especially foractivities geared towards the domestic market,and in reducing inequality. The result of thisprocess at the macro level can be seen in chart10, which illustrates its evolution from 2001 to2013. During this period, there was continuousgrowth in GDP per capita and a decrease inincome inequality, as reflected in the decline inthe Gini index, which reached one of its lowestlevels in recent years.


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CHART 10EVOLUTION OF REAL GDP PER CAPITA AND THE GINI INDEX (2001-2013)

20418.96238

27424.31405

0.596

0.527

0.52

0.53

0.54

0.55

0.56

0.57

0.58

0.59

0.6

19,500

20,500

21,500

22,500

23,500

24,500

25,500

26,500

27,500

28,500

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ginicoefficient

GDP(BRL,2014)

GDP per capita GINI

Source: PNAD/IBGE and Contas Nacionais/IBGE. Prepared by SPI-MP.Notes: Household income per capita among individuals;

Real GDP per capita (prices in BRL, as of 2014); The National Household Sample Survey (PNAD) was not conducted in 2010, as the national population census was conducted that year.

The increase in income, the reduction in inequalityand the decline in poverty were the result of:a combination of several improvements in thelabour market (stemming from the adoption ofa growth model that included job creation andgrowth in income); increases in minimum wage;the expansion of social security and cash transferpolicies, and investments in social infrastructure.They were also due to the effects of all the other

social policies that increased the growth of familyincome with greater intensity in the poorestregions of the country and among the mostdisadvantaged sectors of the population.

F I N A L R E M A R K S

The degree of complexity of social policy as itis currently structured in Brazil has been clearlyillustrated by the data and information presentedin this paper. There is a considerable range ofphysical, financial, human and institutionalresources for these policies, which are fundamentalfor the establishment of a broad and diversified setof social protection and promotion mechanisms.

These mechanisms are essential for achievingsocial justice through substantial improvementsin the basic living conditions of the population. Inspite of the progress achieved, the current systemis still a long way from providing a high standard ofwell-being to the Brazilian population.

Social rights and benefits have been expanded inrecent years, especially through the implementation

of the social policies foreseen in the 1988 FederalConstitution. This expansion required mobilizingan increasing amount of monetary resources tocover the costs of providing them. The data showsthat over the last three decades, government socialspending has nearly doubled in value, reachingclose to one quarter of GDP. This effort to expandthem was concentrated more on cash transfers forfamilies than the production or provision of publicgoods and services.

In becoming so large and diversified, socialexpenditure has come to be an important vector ofaggregate demand. It has the capacity to create abroad internal consumer market, boost production,


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stimulate employment, multiply income and reduceinequality. It is one of the leverages of economicgrowth. Cash transfers to families, especially tolow-income families, have increased the incomeof this sector of the population and expandedtheir consumption of goods and services. At thesame time, the production/provision of universal

public goods and services lead to an increase inemployment in social areas and to the acquisitionof goods and services in the domestic market.This process strengthens the cycle of incomemultiplication, since the consumption of thepoorer classes - which save less than the averagepopulation and consume more goods and servicesproduced in the country - reinforce the multipliereffect of social expenditure, generating more sales,production and employment in the country.

The dynamic impulses generated by social

expenditure, however, can come up againstimportant restrictions, as raising aggregatedemand to a higher level and sustaining it thererequires elevating and restructuring the countryscapacity to meet this demand. Unless the capacityto produce durable and non durable consumergoods and services is broadened and restructured,and improvements to infrastructure are made, theincrease in demand may encounter inflationarypressures, which will annul part of the income

redistribution achieved. On the other hand,without an appropriate response from domesticproduction, the expansion of consumption maygenerate greater demand for foreign productsand possibly lead to imbalance in the balanceof payments. In either case, social expenditureshould not be put in opposition to investment

in expanding capacity and infrastructure. On thecontrary, the key to sustainable growth lies in thesearch for synergies between both components ofdemand.

Finally, the results presented here allow us toaffi rm that social policy plays a strategic role asa driving force for national development dueto its contributions to expanding social justice,distributing income and fostering economicgrowth. It has proven to be indispensable andstrategic for not only confronting adverse

situations, but also establishing the foundationsof a more socially and economically robust anddemocratic nation. In light of all the aspectsmentioned, it is understood that in addition toits well-known role in increasing social justice,social expenditure also has a relevant role toplay in sustainable economic growth, providedthe restrictions described earlier are taken intoaccount, namely those related to the role ofinvestment in the dynamics of the economy.

The social accounting matrix showed that56 percent of the amount spent on socialpolicies returns to government coffers inthe form of taxes and social contributions

after going through the entire incomemultiplication process that social spendingitself engenders. This demonstrates that themultiplier effect on GDP allows governmentrevenues to increase and part of socialspending to pay for itself in the future.


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Social Rights, Income Distribution and Economic Growth: The Brazilian social policy experience

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