Structural adjustment, income distribution and the role of government Theory, and evidence from Brazil.

This thesis discusses the impacts of some policies associated with structural adjustment on the distribution of incomes. It consists of three parts. An institutional chapter surveys and assesses the evolution of views on international debt and adjustment in the economics profession in the late 1970s and in the 1980s, with a special focus on the World Bank's contribution. This chapter provides a general historical background to the more specific models and case studies that follow. A theoretical part considers the long term implications for income distribution of the post-adjustment permanent reduction in the role of government in the public provision of some important inputs, such as health care, education and infrastructure. Chapter 3 derives an endogenous steady-state wealth distribution which is used to investigate the consequences of changes in public investment for equality of opportunity in a world with imperfect capital markets. Chapter 4 considers various policy options for a benign government in that context and discusses comparative statics properties of its optimal size. Chapter 5 extends the analysis into a context with steady-state growth in per-capita incomes and focuses on long-run behavioural consequences of a smaller government when the poor are more dependent on public investment than the rich. Saving behaviour and hence rates of capital accumulation are shown to differ, with persistent inequality-augmenting effects. Finally, the empirical part describes the evolution of the distribution of income - and of some poverty indicators - in Brazil during the 1980s. Using a large repeated cross-section household survey data set, the final two chapters demonstrate the increases in inequality during this period of failed stabilization policies, by means of scalar measures and of a battery of stochastic dominance results. The sensitivity of the inequality (and poverty) measures to variations in the equivalence scale used to compare incomes is investigated. Possible explanations for the behaviour of inequality are suggested by means of static and dynamic decompositions by recipient subgroups, and by some simple but intuitively appealing correlations and regressions on basic macroeconomic variables.