Poverty and Democracy: the Brazilian Experience

We ask what caused poverty to decline in Brazil over the last decade. Our contribution lies in the introduction of a structural change perspective to assess the evolution of poverty by considering the sectoral impact of growth and the social policies at the federal, state and municipal level. We confirm previous findings in the literature that the service sector rather than agriculture contributes the most to the sustained poverty reduction. Strikingly, the public administration is the leading sub-sector. We acknowledge however that the agricultural commodity boom was indeed beneficial for the Brazilian economy, but its impact has indirect effects through the linkages across factors and product markets. We also find that state and municipal expenditures in human capital contribute more to poverty reduction than federal expenditures associated with conditional cash transfer programs; investment in infrastructure does not seem to contribute to poverty reduction. In short, we claim that the payoffs of decentralized policies associated with human capital can be seen in the short run and therefore raise the bar for politicians to maintain and care for these policies. Furthermore, the public service sector, which is one of the main employers in today´s economy, must find ways to innovate and improve productivity if poverty reduction is to be sustainable in the long run.