February 2013

IZA DP No. 7236: The Distribution of Income in Central America

T. H. Gindling, Juan Diego Trejos

revised version published in: Salvador Marti i Puig and Diego Sanchez-Ancochea, 2014, The Handbook of Central American Governance, London: Routledge, 75-94.

We document changes in income and earnings inequality in the five Central American countries from the early 1990s to 2009. In the 1990s Costa Rica had the most equal distribution of income in Central America, and one of the most equal distributions of income in Latin America. At the other extreme, Guatemala, Honduras and Nicaragua were among the most unequal countries in Latin America. Inequality in El Salvador was between these extremes. Then, in the first decade of the 21st century inequality in El Salvador and Nicaragua decreased while inequality in Costa Rica, Guatemala and Honduras increased. By 2009 levels of inequality in El Salvador and Nicaragua were similar to those in Costa Rica. In this paper, we examine why income and earning inequality differs between the five Central American countries, and why inequality decreased in El Salvador and Nicaragua but increased in Costa Rica, Guatemala and Honduras.