The Logic of Redistribution in Federal Nations

What distinguishes the organization of redistribution in federal versus nonfederal nations? In ideal terms, redistribution is unidimensional in fully centralized systems. That is, the centralized system of taxes and transfers redistributes income both between citizens and, implicitly, between territories, and there is no functional distinction between interpersonal (henceforth, t) and interregional redistribution (T). By contrast, all federations feature a budgetary differentiation between these two fiscal tools. Some policies aim to insure against individual-level risks or provide assistance, thus preventing an excessive gap in terms of disposable income (t). These interventions are distinct from those aimed at equalizing the level of fiscal resources across regional governments (T).Footnote ³ Accordingly, redistribution in federations is a two-dimensional political problem. The scope of redistribution in federations depends on (1) the distribution of preferences among citizens and regions, and (2) the rules governing the aggregation of preferences within the system of representation. To illustrate what sets Latin American federations apart from other unions with much larger redistribution, we use a theoretical framework combining both elements (Reference BeramendiBeramendi 2012).Footnote ⁴

Preferences

Figure 2 maps the distribution of preferences in an abstract federation for both interregional and interpersonal distribution. Each quadrant displays preferences over t and T for rich (denoted with subscript R) and poor (denoted with subscript P) citizens in regions that vary in their average income (x-axis) and in their level of inequality (ranging from more equal (superscript e) to more unequal (superscript u)). For instance, T_R^u = 0 and t_R^u* → 0 in the top-right corner suggests that affluent individuals in rich, unequal regions prefer low interregional transfers (T) and low interpersonal redistribution (t approaching 0), where both t and T are bounded between 0 (no redistribution) and 1 (full redistribution). We assume in this analysis that individuals’ preferences for redistribution are driven exclusively by income motives (Reference Moene and WallersteinMoene and Wallerstein 2001), thus excluding the role of labor market risks and insurance motives. Our goal is to capture the trade-off between interpersonal and interregional redistribution in its simplest terms.

Figure 2: Redistributive preferences in federations.

Distributive dynamics vary depending on regional income levels, individual income levels (subscript R and P), and regional distributions of income (superscript e and u). Take first the preferences of the rich. For upper-income people, regardless of their region’s income, their optimal choice is to minimize t. Given the union’s income distribution, the higher the levels of interpersonal redistribution, the greater the income extracted from them. High levels of inequality thus increase the resistance of the rich to t. The cross-region division among the rich comes from preferences for interregional redistribution. Rich individuals in rich regions prefer low levels of interregional redistribution, because the less resources drained from the region, the higher the level of public goods they can provide. The rich in the poor regions, however, have a strong preference for T that grows stronger the higher the level of inequality. In the first place, a large-scale system of interregional redistribution will liberate them of some of the burden imposed by redistribution in the region, by transferring resources away from the rich in the rich regions. This imposes a rent extraction by the rich among the poor on the rich among the rich. Second, they want to minimize the degree of interpersonal redistribution provided in their region so as to maximize the pool of resources from which they can effectively capture rents. For these purposes, interregional transfers provide rents to elites and resources to regional politicians that centralized interpersonal redistribution targeted directly at individuals could not fulfill (Reference FenwickFenwick 2009).

Lower-income people broadly agree to maximize interpersonal redistribution, and high levels of inequality intensify demands for t. The preferences of the poor across provinces at different levels of income diverge regarding interregional transfers. Lower-income people in poor regions want to maximize rents extracted from the rich regardless of where they reside. These are the citizens who would be better off under a fully centralized, highly redistributive system (Reference Bolton and RolandBolton and Roland 1997). Given that such an option is constitutionally excluded in federations, their optimal policy bundle would be one that maximizes interpersonal redistribution (t) as well as interregional transfers between territories (T). The latter ensures that local elites have enough resources to equalize income among individuals; the former would imply that such equalization actually takes place. The poor in the rich regions, in contrast, want to minimize the transfers from their tax base toward the poorer citizens in the poor region (low T). For this subset of citizens, large levels of interregional redistribution would imply a transfer of resources from themselves to the poor in the poor regions. These figures suggest that preferences among poor voters that strongly prefer redistribution are divided over the balance of t and T.

Macro-Level Empirics: Placing Latin American Federations in the Global Context

The central parameters in our theory link the territorial structure of inequality and malapportioned political institutions to low redistributive effort in federations. In this section we show broad cross-national support for this argument and position the Latin American federations as a distinct cluster in a global context. To conserve space, we provide the regression results and discussion of the large-N analysis in appendix Table A2.

Our regression estimates show the relationship between the best-available cross-national measure of interregional inequality, the Gini coefficient of region-level gross domestic product (GDP) per capita, and two indicators of interpersonal redistribution (t): social expenditure (percentage of GDP) and fiscal redistribution (percentage difference between the pretax and transfer “market” Gini and the posttax and transfer “net” Gini coefficients on national household income inequality) (Reference SoltSolt 2009). In this sample of thirty-two countries, the results show that interregional inequality and legislative malapportionment (upper and lower house) are strongly and consistently related to lower redistributive efforts. Online appendix 2 shows Latin American federations have extreme values on both variables; this separates them from their federal counterparts in OECD nations.Footnote ¹² We demonstrate the robustness of these predictions by including important control variables, time and region fixed effects, and adjusting for predictable challenges to time-series cross-sectional data.Footnote ¹³

Including interregional inequality and malapportionment in the models of interpersonal redistribution also adds considerable explanatory power. To show this, we plot the predicted and actual levels of redistribution for our sample in Figure 3. Our three country cases are systematically overpredicted (especially Argentina) in models that do not include interregional inequality and malapportionment. For example, Figure 3 (left) shows that Argentina is expected to reduce market inequality by approximately 15–18 percent on the basis of standard independent variables predicting redistribution. The actual reduction in market inequality in Argentina is 3–4 percent. With interregional inequality and malapportionment included, our cases are predicted more accurately by the model (Figure 3 right). These figures show that the territorial structure of inequality and regional representative structure are important predictors of redistributive efforts.Footnote ¹⁴

Figure 3: Comparison of models predicting redistribution. (Residuals predicted from Model 4 (Figure 3 left) and Model 8 (Figure 3 right) in appendix Table A2).

These empirical analyses are necessarily preliminary and correlative given the endogenous relationship between the territorial structure of inequality and institutional selection predicted in our theory. However, the results provide a reasonable basis for assessing the cross-national association between these variables, and for placing the Latin American federations in comparative context.

Distributive Tensions and Fiscal Structures in Latin American Federations

Having established the broader theoretical and empirical links between the territorial structure of inequality, regional representation, and redistributive effort, we move to a more in-depth analysis of cases that exemplify these relationships. We constructed a new data set of region-level inequality to characterize the redistributive pressures in Argentina, Brazil, and Mexico and how each is influenced by representative structures that privilege the less populated regions of these nations. The figures in this section are intended to be directly comparable to our theoretical diagrams in Figure 2. For each case, we calculate levels of regional inequality (measured by the state or province-level Gini coefficient of income per capita) and regional median income per capita to assess patterns of distributive pressures over time. Importantly, we are showing latent preferences for redistribution (in pretax inequality) and not redistribution itself. From a theoretical perspective, we are trying to explain whether citizens and politicians within these nations would seek interpersonal or interregional equilibration of income, and how those preferences are represented in policy making.

We find consistent evidence that the territorial structure of inequality favors interregional over interpersonal government redistribution. In all three nations, legislative support should be higher for intergovernmental transfers to equilibrate regional income levels than for central policies to reduce interpersonal inequality. Within these cases, however, are different inequality patterns that drive distinct redistributive coalitions. Thus, these nations fit Mill’s method of agreement, whereby cases with different political traditions and histories result in similar distributive outcomes as a result of the common structural factors of territorial inequality and legislative malapportionment. In Brazil and Mexico, rich states are more equal and poor states more unequal. Malapportionment in Brazil strongly favors the sparsely populated Amazon and poor Northeast, and governors in rich, powerful states have therefore fought to keep resources inside their borders. In Mexico, the malapportioned senate also drives allocations to less populated (but not necessarily poor) regions, and tax centralization and expenditure decentralization keeps demands for interregional transfers high. In Argentina, extreme malapportionment favors interior regions with strong preferences for interregional redistribution.Footnote ¹⁵

Figure 4 maps the configuration of region-level Gini coefficients and regional median incomes for the most recent available year for Argentina (2013), Brazil (2012), and Mexico (2012). For each country, we calculated these values using surveys conducted by their national statistical agencies. The reported Gini coefficients for Brazil (from the Pesquisa Nacional por Amostra de Domicílios) and Mexico (from the Encuesta Nacional de Ingresos y Gastos de los Hogares) are calculated per equivalent adult, on the basis of the following equivalence scale: Y^E = Y * [.5 + (n – 1) * .25], where n is the number of members in a household and Y is income. Argentina’s Encuesta Permanente de Hogares (EPH) is not a national survey but covers only the largest cities in the country. Despite this limitation, the EPH includes one city in each province, and Argentina is highly urbanized, allowing for generalizations of provincial distributions.Footnote ¹⁶ Argentina’s values are calculated on a per capita household basis, given the structure of the data available for that nation.

Figure 4: Distributive maps of Argentina, Brazil, and Mexico.

While these data are certainly imperfect—they are not directly comparable across countries—they do provide reasonable estimates of national income spreads that are comparable across regions within the nation and over time.Footnote ¹⁷ To demonstrate patterns, we use descriptive statistics, figures and tables, and historical analysis of high-profile social policies. In doing so, we cannot provide a full account of the range of redistributive policies enacted in these nations, nor can we fully address differences in regional tax capacity, which may help explain some differences in redistributive effort across regions.Footnote ¹⁸

The median income of the state or province is indicated by the shading of the territory. The income level of the country as a whole is standardized so that any state with income greater than 0 is richer than the average. Intraregional inequality is indicated by the size of the circles overlaid on the region and the number listed inside the circle. The circles in Figure 4 are scaled relative to the region with the most even income distribution in that year: La Pampa (Argentina), Santa Catarina (Brazil), and Tlaxcala (Mexico). The numbers inside the circles represent how much larger, in percentage difference, the regions are in relation to La Pampa, Santa Catarina, and Tlaxcala.

The patterns of territorial inequality in the three nations are distinct. According to our logic, in Argentina voters in the richer provinces of the federal capital of Buenos Aires, Santa Cruz, Tierra del Fuego, and La Pampa should be less willing to provide funds to the poorer regions in the northern interior (lighter shades in Figure 4). Importantly, the largest circles are not exclusively in the poorer provinces. Certain wealthy provinces, such as Chubut, Neuquén, and Rio Negro would benefit from interpersonal redistribution but not progressive interregional transfers.

At the same time, poor provinces are sharply divided, with several of the poorest provinces (e.g., La Rioja, Chaco) consistently showing the lowest levels of inequality while others (e.g., Misiones, Corrientes, Salta) have the highest levels. Interpersonal and interregional redistributive pressures in Argentina work at cross-purposes: the provinces that would benefit from an expansion of centralized interpersonal redistribution (t) are not necessarily the same ones that would gain from interregional redistribution (T).

The Brazilian map shows that Northeastern states are both the poorest and the most unequal. Although there is a clear analogy between the Brazilian Northeast and the Argentine interior provinces on the grounds of their income levels, the interests of their voters regarding interpersonal redistribution diverge. Brazil’s South and Northeast have clear conflict on the desirability of t and T, both of which would constitute an income transfer away from São Paulo. In Mexico, the map shows a geographic divide of rich and relatively equal states in the north and poor and unequal states in the south. We find considerable variation in the level of inequality across states that in the Mexican case are negatively correlated with regional income.

The same information provided in the maps is presented in scatterplots in Figure 5 that denote the size of each region according to the sum of seats it holds in both houses of the federal legislature for the first and last years of each country’s data sample.Footnote ¹⁹ These charts can be directly compared to the hypothetical distribution of preferences described in Figure 2. Each chart in Figure 5 can be divided into quadrants depending on whether regions are above or below the median national income (indicated by the dashed line crossing 0 on the x-axis), and are characterized by higher or lower inequality than the national level (indicated by the dashed line on the y-axis). Regions in all three cases cover all quadrants, but very few observations are in the upper-right corner, characterized by poor voter preferences for high t and low T. The missing upper-right quadrant (indicating states with strong demand from poor voters and resources available to fund social transfers) is one possible reason interpersonal redistribution is low in these countries. In wealthy countries with rich but unequal states, such as California and New York in the United States, representatives from these areas often take the lead in driving legislative initiatives for interpersonal redistribution.

Figure 5: Redistributive pressure by total seats. (Seat counts include both upper and lower house apportionment).

In all three cases the available evidence suggests that coordination of the poor in favor of interpersonal redistribution is difficult given the territorial distribution of inequality. Figure 5 shows that the bulk of regions in Argentina and Mexico are in the bottom quadrants. In these quadrants, poor voters have weaker preferences for t, in relative terms, than seen among poor voters in the unequal regions in the top quadrants. In both countries, the majority of seats are on the left side of the figure, indicating that most are relatively poor regions with a strong preference for T from both rich and poor voters. Brazilian states (and seats) cluster more in the bottom-right and top-left quadrants. In the top-left quadrant, the poor voters would prefer high t and T. The poor voters in the bottom-right quadrant should oppose T and have relatively weak preferences for centralized t. Brazil’s territorial structure of inequality suggests the possibility of strong polarization among relatively rich and equal regions that prefer to minimize all centralized forms of redistribution, and relatively poor and unequal regions with poor voters that prefer high levels of both t and T.

Brazil’s federal bargain suggests a compromise between these polarized regions on the basis of moderate levels of interregional redistribution and low interpersonal redistribution. Consistent with this logic, Brazil has always been characterized by a vibrant federalism with a high degree of state autonomy that limits centralized redistribution. Much of the nineteenth century was dominated by the “politics of governors,” in which state leaders used their control of elections to the Brazilian National Congress to direct the national legislative agenda (Reference FenwickFenwick 2009). A distinctive feature of Brazil’s present fiscal structure is the state-controlled value-added tax (VAT), Brazil’s largest source of revenue.Footnote ²⁰ Governors in Brazil have been adamant about retaining control over indirect taxation, even during times of military rule (Reference FalletiFalleti 2011). Brazil’s system of revenue sharing and federal expenditure disproportionately favor the less populated states, leading to a perception that the Brazilian federation is highly redistributive. However, control of the VAT by states limits these tools. Given large disparities in income and the concentration of industry in a few regions, the VAT counteracts the compensatory efforts made by the federal government through its revenue-sharing and transfer formulas (Reference Ter-MinassianTer-Minassian 2012).

In Argentina, there is always a large coalition of states that would presumably press for interregional redistribution (those seen on the left side of the dashed lines in Figure 5) (Reference GonzálezGonzález 2012). Several large provinces, including Buenos Aires and Córdoba, sat right at the median level of income in 2013 and were below the median in 1995. These large, productive states have some incentive to join with other relatively equal low-income provinces such as Chaco and Formosa to increase interregional transfers.Footnote ²¹ These distributive pressures have changed somewhat in recent years, however. Between 1995 and 2013, the federal capital (Buenos Aires) became wealthier relative to the national median and more equal than the national average. Other large provinces have also become comparatively more equal, resulting in low demand for interpersonal redistribution throughout the time observed. The resulting distributive scenario in Argentina is described by Artana and colleagues (Reference Artana, Cristini, Moskovits, Bermúdez and Focanti2010, 9): “There is, then, a federal government with powers and demands bounded by a marked regional redistribution; however, demands for personal redistribution do not have a clear arena for expression” (our translation).

Public expenditure in Mexico has very limited effects on its income distribution. According to estimates from the World Bank, most government programs in Mexico—with the exception of elementary education, conditional cash transfers from Progresa/Oportunidades and Procampo, and the health clinics of the Ministry of Health—are in fact regressive (World Bank 2005). The territorial structure of inequality helps explain these spending patterns. A large group of states have successfully blocked efforts at centralized functional redistribution, because these states are internally more equal than the country as a whole (shown in the lower half of Figure 5), while favoring the use of interregional transfers to reduce regional inequality, because they are poor relative to the national average (shown in the bottom left quadrant of Figure 5).

Figure 6 illustrates interregional and interpersonal distributive pressures over time in these three cases. For each year, we calculate the percentage of all legislative seats held by regions above the national Gini coefficient as a rough proxy for poor voter preference in favor of interpersonal redistribution (we assume that rich voters always seek to minimize t). These values are shown at left in Figure 6. The panel on the right plots the percentage of seats held by regions below the national median income, indicating presumed rich and poor voter support in favor of interregional redistribution. In all three cases, the seat share in favor of interregional redistribution (right) is significantly higher than that for interpersonal redistribution (left). The seat share theoretically in favor of interpersonal redistribution is quite low (40 percent or less) in all cases except Mexico in 2005, where support neared 50 percent.Footnote ²² Support for interregional redistribution is consistently high in Argentina and Mexico, most often above 50 percent of seats in both chambers and sometimes above 60 percent. Theoretical support for T is higher than support for t in Brazil, but lower on average compared to Argentina and Mexico.

Figure 6: Redistributive pressures in Latin American federations over time. (Authors’ calculations using yearly survey data and upper and lower house seat counts).

These patterns of preferences for redistribution have been largely consistent over time in all three nations, reflecting stability in economic geography and in the political structure articulated around fiscal federalism. There has been little change in the architecture of fiscal federalism in Brazil over the past three decades, despite repeated calls for reforms. The relative stability of the territorial structure of inequality provides one explanation for this impasse. While social spending increased in Brazil in recent years under the leadership of the Workers’ Party, the underlying fiscal structure and distributive logic of the country persists. Tellingly, the most successful example of redistributive policy in Brazil, Bolsa Família, has had a large impact on poverty precisely because it delivers resources straight to mayors rather than through governors (Reference FenwickFenwick 2009). Opportunities to transform Brazil’s redistributive equilibrium have depended fundamentally on electoral opportunities to tear down existing state patronage networks linked to malapportionment (Reference BorgesBorges 2013).

Argentina’s fiscal federalism is characterized by volatility in both the profile of redistributive pressures and bargaining over the rules of the game. After a near breakdown of the fiscal system in 1988, the provinces agreed to share revenue according to fixed coefficients. This resulted in a very large interregionally distributive system, which also reflects the disproportionate representation of small provinces of the interior. Reforms following the fiscal crisis in 2001 revised the system of fixed transfers but resulted in larger transfers overall, preserving its basic structure (Reference Saiegh, Fiorucci and KleinSaiegh 2004). Argentina’s transfers system is arguably the most complex in the world and is strongly influenced by malapportionment (Reference GervasoniGervasoni 2010).

Figure 6 demonstrates that the number of seats in Mexican states that would likely favor greater interregional transfers spiked above 50 percent at several points in the 1990s. During this period the country witnessed rapid decentralization that increased interregional transfers to fund the devolution of education, health, and public works responsibilities to subnational levels. States with higher Gini values than the national average were stable (and low in number) until 2005 in Mexico, when they briefly neared 50 percent of the seat share. In the 2000s, according to the states’ assumed preferences, we should see greater efforts to redistribute income interpersonally through more progressive federal policies. Indeed, between 2003 and 2010 Mexico dramatically expanded its social security program Seguro Popular to include health care for informal-sector workers, including more than forty-three million affiliates (Reference Levy and SchadyLevy and Schady 2013). Similarly, the old-age program 70 y Más increased coverage to the entire country and lowered the eligibility age to sixty-five in the period 2008–2012. Progresa/Oportunidades also gained much more generous funding during the 2000s and continues to have significant effects on poverty, if not the education outcomes to which it is linked (Reference Levy and SchadyLevy and Schady 2013). The most recent data (2010–2012), however, suggest significantly higher demand for interregional redistribution and lower demand for interpersonal transfers.

National income inequality in Mexico changed little throughout the period 1984–2000. Hence, no relationship exists between inequality and decentralization in the country as a whole, as a “naïve” hypothesis linking income distribution and decentralization would suggest. The mapping of redistributive pressures suggests that decentralization and greater interregional redistribution increased in the 1990s as the group of states whose median voters were willing to press for interregional transfers increased its representation in the legislature. Equally relevant, expansion of redistributive social policies occurred in the 2000s under a rightist president, as national income inequality was falling from its highest levels in the late 1990s. The position of the states relative to the national level of inequality suggests a reason for this unexpected outcome. While national inequality may have fallen, this was driven by changes in only a few states (Reference Lustig, López-Calva and Ortiz-JuarezLustig et al. 2013). Those states that did not experience reductions in inequality in the 2000s became more numerous and thus better represented in the national legislature.

Legislative Barriers to Redistribution

In the figures throughout this article, we have shown consistent evidence that many states and provinces in Latin America’s federations do not have strong incentives to favor national level interpersonal redistribution. Because these regions are more equal than the nation as a whole, they would be net contributors to social policies to alleviate inequality in the most unequal regions. In these three nations, preferences for interregional redistribution are strong. Relatively poor states could benefit from transfers that could equilibrate regional income. Whether transfers operate according to this principle depends on the political logic of intergovernmental distribution. In all three cases, this mechanism is strongly shaped by legislative malapportionment.

In theory, a focus on interregional transfers in Latin American federations may advance goals of income redistribution and poverty reduction by shifting resources to the neediest regions. If transfers are working this way in Latin America, income levels should be a strong predictor of intergovernmental transfers. However, Figure 7 shows that (low) population and related representation in the malapportioned legislatures are the strongest predictors of transfer levels in Argentina, Brazil, and Mexico.

Figure 7: Income, population, and the distribution of interregional transfers. (Circles indicate the level of median household income by region).

In Figure 7, intergovernmental transfers per capita for each nation are plotted according to (logged) region-level population. The circle size indicates median regional income. In all three cases, but particularly in highly malapportioned Argentina and Brazil, transfers appear to follow a political rather than an economic logic. This is apparent even in Mexico, where malapportionment is limited to its Senate. If transfers were progressive, the smallest circles should be highest on the y-axis. Instead, the regions with the lowest populations receive the highest transfers, regardless of income level. In none of these nations do interregional transfers flow strongly to the poorest regions, thus limiting their potential to equilibrate income either interpersonally or interregionally.

Country studies describing the history of apportionment and transfers describe a political logic linked to concerns over interpersonal redistribution. The Brazilian revenue-sharing system has its origins in the 1960s, when the military governments tried to use redistributive interregional transfers to weaken governors in the industrialized states of São Paulo and Rio de Janeiro and strengthen conservatives in less developed provinces (Reference Díaz-CayerosDíaz-Cayeros 2006). Similarly, in Argentina, legislative representation was reapportioned according to the so-called Ley Bignone, for the namesake dictator, among other similar reforms, to limit the influence of the industrialized provinces around Buenos Aires. In both countries, military governments feared socialist influence in industrialized regions they feared would advance interpersonal redistribution (Reference EatonEaton 2001). The demographic shifts associated with industrialization (depopulation of the interior) have further reinforced these patterns and made malapportionment more efficient for political purposes.

There is ample evidence in the Brazilian literature that the northern states have been major recipients of redistributive transfers from the federal level of government (Reference Samuels, Mainwaring and GibsonSamuels and Mainwaring 2004). Importantly, Figure 7 shows that transfers flow not so much to the poor states as to the unpopulated states. The northern Amazonian states that are in the middle of the income distribution benefit the most from the transfer system. States—both rich and poor—have defended a highly decentralized fiscal federalism articulated around interregional transfers. The poor Brazilian states could have pressed for a centralized system of taxation, which would have presumably made them better off by increasing their access to federal government resources. Rent seeking linked to legislative malapportionment may thus limit redistribution. Local elites in poor and unequal states might discount the virtues of interpersonal redistribution because centralization of fiscal policies would undermine the local patronage networks they dominate (Reference Hagopian, Gervasoni and MoraesHagopian, Gervasoni, and Moraes 2009; Reference FenwickFenwick 2009).

Relatively recent transformations of Mexico’s fiscal federalism also reflect the dual logics of the territorial structure of inequality and malapportionment. Mexico created a comprehensive revenue sharing system in 1980. This system both guaranteed revenue to the states and stripped them of most of their tax collection authority. While this centralization of tax collection authority could ostensibly enable transfers across territories and people, states were guaranteed resources similar to their historical tax collection, and the allocation formulas predominantly weighted population and economic activity in the states. This meant that although fiscal transfers increased during the 1980s, transfers were not progressive (Reference Rodríguez-Oreggia and Rodríguez-PoseRodríguez-Oreggia and Rodríguez-Pose 2004).

Federations in Latin America redistribute income across their heterogeneous regions as part of the political coalition building of these nations that is intimately tied to legislative apportionment (Reference Gibson and CalvoGibson and Calvo 2000). The territorial structure of inequality and the institutional design of all three nations suggest that the continuity of this political distribution is strong and that its redistributive systems have not yet experienced profound transformations.

Conclusion

Latin America has the highest level of inequality of any region in the world, despite relatively high levels of income. Governments in the region have done very little, in comparative perspective, to redistribute income to alleviate these disparities. Major shifts in the ideological orientation in the Brazilian government and greater policy emphasis on reducing poverty in all three countries in the past decade offer some hope that this trend is reversing. However, despite the substantial strides by these governments to reduce poverty, the levels of inequality in these nations remain extremely high. While important, recent policy interventions in all three nations have not fundamentally altered their income distributions, and slowing growth in the region may lead to retrenchment that scales back these gains.

Dominant theories explaining the relationship between inequality and redistribution cannot account for continuity in Argentina, Brazil, and Mexico’s limited response to income inequality (Reference Huber and StephensHuber and Stephens 2012; Reference Haggard and KaufmanHaggard and Kaufman 2008; Reference Kaufman and Segura-UbiergoKaufman and Segura-Ubiergo 2001; Reference Segura-UbiergoSegura-Ubiergo 2007). We offer one important explanation for this outcome—these nations have fiscal structures articulated primarily around politicized intergovernmental transfers rather than interpersonal income redistribution. We show that these fiscal structures are consistent with representation based around regions, the spatial distribution of income within and across those regions, and politicians’ assumed preferences based on those distributions. The territorial structure of inequality and the systems of representation in these federations thus systematically undermine class-based solidarity in Argentina, Brazil, and Mexico.

Across the three cases, high interregional redistribution combined with very low levels of interpersonal redistribution are consistent with their preference structures that are linked to uneven regional income and regionalized national representation. In these federations local elites of less populated regions appear to have succeeded in securing their first preference—a political and fiscal system that transfers considerable resources to them interregionally, without engaging in large-scale interpersonal redistribution. Importantly, this institutional logic has not been eliminated with recent policy reforms. The evidence presented here shows strong persistence in these dynamics. Largely because of the legacy of inequality that is institutionalized within the system of political representation in these nations, we find reason to be skeptical that recent reforms and the current egalitarian climate reflect permanent and profound transformations.