Supplementary Material : A Time Series Analysis of Household Income Inequality in Brazil from 1977-2013

This study analyses the evolution of household income inequality in Brazil from 1977 to 2013 using the Brazilian National Household Survey data at aggregated and regional levels. Four income share quantiles are analysed: Top 1%, Top 10%, Bottom 10%, and Bottom 50%. The novelty of our study lies in the use of time-series techniques to understand the phenomenon of income inequality within this period. We use the Markov-switching regime change and state-space structural time series techniques. Both strategies suggest that income concentration periods in Brazil are related to low growth rates but high inflation rates as opposed to the case in many developed countries. Results from Markov-switching models suggest the detection of a new regime during the first decade of the 2000s in the poorest quantiles (Bottom 10% and 50%) with increasing correspondent income shares. Moreover, a regime of low shares started to prevail at the same time for the Top 10%, whereas a concentrated income share regime had prevailed in the 1980s and the 1990s for those at the Top 1% quantile. We argue that Brazilian macroeconomic instability helped produce a regime of low income shares at the bottom of the distribution. Our results suggest that recent inequality reduction in the shares of the Top 1% quantile can be viewed as a "back to normal" transition instead of as the beginning of "a new era" whereas significant changes can be seen in other quantiles. Results of the state-space models also suggest that the macroeconomic instability in the 1980s had severe effects on Brazilian inequality, whereas the dynamics of the Top 1% income shares reinforce the return of the 1970s level, considering aggregated data. Finally, our estimates unveil important regional differences in many quantiles mainly in the low brackets in which poorer regions seem to have persistent income inequality that takes longer to reduce