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Unveiling the Cosmic Race: Racial Inequalities in Latin America

Latin America is one of the regions with the highest income inequality and one of the most racially diverse. Historically, most Latin American countries build their national identities through a 'melting pot' ethnic figure: 'mestizos' or 'mulatos' —the mixed-race descendent from European, Indigenous, and African population. However, Latin American countries have veiled income inequalities between racial groups through mestizaje identity or the 'Cosmic Race'. Using LAPOP AmericasBarometer data, I compile information on skin tone and proxies for income for nearly 150,000 individuals across Latin American countries during the last decade. The purpose of the paper is twofold. In the first part, I estimate newly racial inequality measures at the national level. Countries with higher income inequality between racial groups have worse economic development: a one percent increase in the ratio of racial over total income inequality correlates with a decrease of nearly 4 percent in GDP per capita. In the second part of the paper, I use a Oaxaca-Blinder decomposition and control functions to analyze the racial income gap at the individual level. Every darker skin tone out of an eleven-color palette has at least 6 percent less monthly income per capita. More than half of the effect cannot be attributed to returns to observable average characteristics of the racial groups. There is substantial heterogeneity between countries. Besides taste-based racial discrimination, other mechanisms are statistical discrimination and occupational segregation. Alongside justice and reparations, progressive taxation in income or 'tagging' could decrease race-based disparities and improve economic development.