Inequality in PeruPeru’s capital city Lima is home to more than 10 million people, which is almost a third of the 33 million people who live in the country. Meanwhile, the second largest city in Peru, Arequipa, has just one-tenth of the population size of Lima, highlighting disproportionate overpopulation in the capital. The fact that such a large proportion of the country lives in the capital city has exacerbated inequality in Peru, as rural areas mostly miss out on government programs that aim to boost development. Also, the focus remains on the urban hotspot because governments view this as the best way for the country to improve its economic status through trade and other economic activities.

In the 20th century, the population of Lima exploded, particularly after the Second World War when inward migration to the city picked up as people searched for better opportunities and living conditions. Reports suggest that Lima’s population will continue to grow to almost 13 million by 2035.

Rising Inequality in Peru

Whilst there has been a reduction of poverty overall in Peru, with poverty rates falling from 59% to 20% between 2004 and 2019. In addition, the majority of this development took place in the urban areas of Peru, especially Lima, allowing rural areas to fall behind and inequality levels to grow. In 2022, the poverty rate in Peru was 25%, as a result of a rise from the COVID-19 pandemic. Also, in 2021, more than half of the country’s population was living in moderate food insecurity where the available food lacked all the necessary nutrients for a healthy life. This resulted in increasing cases of health conditions such as anemia.

Rural areas remain the home of the poorest regions in Peru, where there is a lack of opportunities to help civilians rise out of poverty. Inequality in Peru is evident through the level of schooling in years, which in Lima is double compared to the level in the country’s most deprived rural areas.

Possible Solutions

A report published by the World Bank in 2023 recommended the government promote access to better public services throughout the country, including the availability of drinking water, sanitation and electricity. Additionally, it stated the need for the government to address the informal employment sector, particularly since the pandemic, as approximately three-quarters of workers’ jobs are informal.

One big problem in Peru is unfair taxation, which fails to collect sufficient funds through income tax and instead focuses on value-added tax (VAT), which disproportionately affects the poor. In fact, the government has made no plans of reforming the tax system and instead has even made moves to reduce corporate income taxes in hopes of encouraging investment in the country. This relieves businesses of taxes, which if increased, could help fund social projects and improve the living conditions of those living in poverty. Changing the method of tax collection to better reflect incomes it would also allow the government to collect more money, which could fund social projects to reduce inequality, while also not unfairly burdening the poor.

The high levels of informal jobs also impact the government’s ability to collect income taxes. Similarly, without proper records and documentation of wages, it is impossible to collect the appropriate amount of tax, if any in the case of the work being off-record.

What is Next?

Efforts to address the disproportionate overpopulation and inequality in Lima, Peru, are crucial for the country’s development. Recommendations from the World Bank include promoting access to public services throughout the country and addressing the informal employment sector. The government’s consideration of tax system reforms could help in reducing inequality and funding social projects for the benefit of those living in poverty, thereby bringing about progress for Peru.

– Hannah Naylor

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