Functional income distribution in Brazil in the period 1959-2009

Abstract

Many papers have been written about the Brazilian personal income distribution focusing in its origin, causes and changes. Nevertheless, few have been made on factors share incomes, mainly due to lack of data. This paper starts by describing the evolution of labor share income from 1959 to 2009. Afterwards focus on explaining the capital share income by the means of a CES function. After analyzing three alternative methods to compute the labor share income this paper concludes that it is, on average, 52.6%. Those shares are inferior, to those of countries more or less developed than Brazil. Next the focus change to explain the capital share income, using a CES function model. The results are quite robust both for the economy as whole and for the enterprise sector only. The economic theory suggests that the relationship between capital income share and the capital/product rate is negative if the possibilities of substituting labor for capital are relatively low. The results are substantially good: the drop of the income share of capital occurred simultaneously with the increase of the capital/product rate, both for the economy as whole as for the enterprise sector. The decomposition of the disposable national income appropriate by families shows that there is a correlation between the share of capital income and the Gini coefficient. The role of the minimum wage for personal income distribution is also part of the explanation.