The paper reviews the steady and widespread decline in income inequality which has taken place in most of Latin America over 2002-10 and which - if continued for another 2-3 years - would reduce the average regional income inequality to pre-liberalization levels. The paper then focuses on the factors, which may explain such inequality decline. A review of the literature and an econometric test indicate that a few complementary factors played an important role in this regard, including a drop in the skill premium following a rapid expansion of secondary education, and the adoption of a new development model by a growing number of left-of-centre governments which emphasizes fiscally-prudent but more equitable macroeconomic, tax, social expenditure and labour policies. For the region as a whole, improvements in terms of trade, migrant remittances, FDI and world growth playeda less important role than expected although their impact was perceptible in countries where such transactions were sizeable.
income inequality human capital inequality policy regimes external conditions Latin America