Short and Long-Run Distributional Impacts of COVID-19 in Latin America

Abstract

We simulate the short- and long-term distributional consequences of COVID-19 in the four largest Latin American economies: Argentina, Brazil, Colombia and Mexico. We show that the short-term impact on income inequality and poverty can be very significant, but that additional spending on social assistance has a large offsetting effect in Brazil and Argentina. The effect is much smaller in Colombia and nil in Mexico, where there has been no such expansion. To project the long- term consequences, we estimate the impact of the pandemic on human capital and its intergenerational persistence. Hereby, we use information on school lockdowns, educational mitigation policies, and account for educational losses related to health shocks and parental job loss. Our findings show that in all four countries the impact is strongly asymmetric and affects particularly the human capital of children from disadvantaged families. Consequently, inequality of opportunity is expected to increase substantially, in spite of the mitigation policies.