Study Finds Peru’s Taxes and Transfers Deepen Gender Inequality in Urban Families

The World Bank’s new study shows Peru’s fiscal system, though seemingly neutral, actually penalizes families with children while benefiting elderly and rural households. Heavy reliance on consumption taxes and limited transfers deepen gendered inequalities, leaving urban families and women carrying the heaviest burdens.

A new policy research paper from the World Bank’s Poverty and Equity Global Department, supported by the Peru Gender Flagship initiative and the Umbrella Facility for Gender Equality, has cast a sharp light on how Peru’s fiscal system shapes the lives of different households. Authored by Paola Buitrago-Hernandez, Luciana de la Flor Giuffra, Gonzalo Rivera, and Eliana Rubiano-Matulevich, the report argues that while Peru’s taxes and transfers appear gender-neutral on paper, their real effects often deepen inequality. Families with children shoulder a heavier load, while elderly and rural households reap disproportionate benefits.

Poverty Decline Stalls, Inequalities Deepen

The report begins by placing Peru in context. The country enjoyed robust growth from 2004 to 2019, reducing poverty and expanding the middle class. But the pandemic reversed much of this progress, pushing poverty back to 27.6 percent in 2024, with nearly two million Peruvians falling into extreme poverty. Economic fragility has been compounded by political turbulence and institutional weaknesses. Within this vulnerable setting, gender divides are glaring. Women are clustered in informal jobs, earn about 25 percent less than men, and spend far more time on unpaid care work. This unpaid care gap directly influences how households experience fiscal policies, since caregiving reduces women’s ability to participate fully in the labor market and limits household income.

When Fiscal Policy Raises Poverty

Using the Commitment to Equity (CEQ) methodology extended with a gender lens, the authors uncover uncomfortable truths. Once indirect taxes like the Value Added Tax (VAT) are deducted, poverty in fact increases by 1.4 percentage points when measured in terms of consumable income, that is, income after taxes and cash transfers but excluding public services. The redistributive impact of flagship programs such as JUNTOS, a conditional cash transfer for families with children, and Pension 65, a non-contributory pension for the elderly, is offset by heavy reliance on regressive consumption taxes. It is only when the value of public services such as education and health is added, producing final income, that poverty and inequality decline. This reliance on public service valuation highlights both the strength of social investments and the limits of fiscal transfers in directly reducing monetary poverty.

Families with Children Pay the Highest Price

The aggregate results conceal sharper inequalities. Families raising children, whether nuclear or extended, emerge as the most penalized. After taxes and transfers, their poverty rates rise by two to three percentage points, reflecting what the report terms a “care penalty.” Households without children, especially elderly couples or single adults, benefit the most, with poverty falling by several points. Lone mothers present a partial exception: thanks to targeted transfers, their poverty levels hold steady or even decline slightly when they have care dependents. Yet the magnitude of support remains too modest to compensate for structural disadvantages in the labor market and the heavier unpaid care burden they shoulder. In short, the fiscal system does little to protect working-age families balancing caregiving with the demands of earning a living, even as it cushions older households.

Rural Gains, Urban Losses

Geography further complicates the story. Agricultural households, predominantly rural and highly informal, see real gains after fiscal policy is applied. Transfers such as JUNTOS and Pension 65 are targeted effectively, and their tax exposure is limited. Non-agricultural households, largely urban, experience the opposite: they pay more in consumption taxes yet receive fewer transfers, leading to an increase in poverty. This imbalance reflects a deliberate focus on rural poverty reduction, but it overlooks a new reality: the majority of Peru’s poor now live in cities. Without fiscal tools better adapted to urban poverty, the system risks becoming increasingly misaligned with the country’s demographic and economic shifts.

Reform Options and a Call for Change

The report tests three potential reforms: mandating social security contributions for the self-employed, removing VAT exemptions, and expanding transfers like JUNTOS and Pension 65. The first two options worsen poverty outcomes, either by cutting disposable income in the short term or by raising the cost of living. Only the third scenario, expanding transfers, reduces both poverty and inequality, though it remains insufficient to close the gap for families with multiple dependents. The authors conclude that a broader agenda is needed. They call for child allowances, tax deductions linked to care responsibilities, and expanded childcare and eldercare infrastructure to redistribute the burden of unpaid care. They recommend broadening the personal income tax base while protecting low-income earners, improving urban-targeted transfers, and strengthening property taxation as an alternative revenue stream. Above all, they insist that fiscal reform must be gender-responsive, integrating women’s economic realities into tax and transfer design.

The World Bank study delivers a stark message: Peru’s fiscal system delivers unequal burdens and uneven benefits. It helps the elderly and rural poor but sidelines families raising children, particularly in urban settings. By applying a gender lens, the research exposes inequities invisible in aggregate statistics and underscores the urgency of reform. Unless Peru recalibrates its fiscal tools to reflect the realities of care work, urban poverty, and gendered labor market disadvantages, its policies risk entrenching rather than alleviating inequality. The findings are not merely technical; they strike at the heart of how societies value caregiving and who pays the price for growth and stability.