Date of Submission

Spring 2018

Academic Programs and Concentrations

Economics

Project Advisor 1

Dr. Felipe Rezende

Abstract/Artist's Statement

A common belief of the global community is that Income inequality in Brazil has decreased. This paper analyses the composition of income inequality in Brazil through the effects of neoliberal policies on the relationship between capital flows and income inequality from the 1980s to 2015. The neoliberal policy that will be the focus of this paper, is the Washington Consensus which was introduced in the early 1990s. The historical analysis situates the Consensus in the context of Brazil. Hyman P. Minsky’s theory of financial instability applied to Brazil reveals the flaws within standard neoclassical trade theories underlying the Consensus, i.e. Stolper-Samuelson Theorem and the Factor Price Equalization Theorem. These standard theories provide further understanding of the relationships between income inequality and capital flows, capital controls and financial liberalization. Which can be applied and compared to the actual trajectory of income inequality after the Washington Consensus was introduced to Brazil. The effect of capital flows on income inequality in Brazil, was for the most part negative. High volumes of inflows contributed to economic recessions and crises in, exacerbating the income inequality that already exists. The result is the Middle 40 percent income shares are being squeezed out, from the increase in income of the Bottom 50 percent and the stagnation of the Top 10 percent. The decline in the inequality is derived from the movements of the Bottom 50 percent shares and the Top 10 percent shares which can be partially attributed to Brazil’s successful conditional cash transfer program, the Bolsa Família. A conclusion that comes from Minsky’s theory, a lesson posed as a counterfactual of the crises is, that capital flows should be regulated and there should be restrictions on the volume of inflows. The future for Brazil’s inequality is unknown. With the worst recession in history and without careful consideration of both domestic policies and those concerning trade, there is the possibility of a relapse in the progress made in the income distribution.

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Open Access

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