Fiscal Policy, Inequality, and the Ethnic Divide in Guatemala

Guatemala is among the most unequal countries in Latin America. It also has the highest incidence of poverty, especially for the indigenous population. In this paper we do a fiscal incidence analysis using the 2009-10 household survey ENIGFAM. The results show that fiscal policy does very little to reduce inequality and poverty overall and along ethnic lines. Persistently low tax revenues are the main limiting factor. Even worse, tax revenues are not only low but also regressive and burdensome on the poor. Consumption taxes are high enough to offset the benefits of cash transfers: poverty after taxes and cash transfers is higher than market income poverty.