Fiscal Policy, Inequality and the Poor in the Developing World

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The United Nations University World Institute for Development Economics Research provides economic analysis and policy advice with the aim of promoting sustainable and equitable development. The Institute began operations in 1985 in Helsinki, Finland, as the first research and training centre of the United Nations University. Today it is a unique blend of think tank, research institute, and UN agency-providing a range of services from policy advice to governments as well as freely available original research. Terms of use: Documents inThe Institute is funded through income from an endowment fund with additional contributions to its work programme from Denmark, Finland, Sweden, and the United Kingdom. Katajanokanlaituri 6 B, 00160 Helsinki, FinlandThe views expressed in this paper are those of the author(s), and do not necessarily reflect the views of the Institute or the United Nations University, nor the programme/project donors. Abstract: Using comparable fiscal incidence analysis, this paper examines the impact of fiscal policy on inequality and poverty in 25 countries for around 2010. Success in fiscal redistribution is driven primarily by redistributive effort (share of social spending to GDP in each country) and the extent to which transfers/subsidies are targeted at the poor and direct taxes targeted at the rich. While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases poverty in 4 countries using a US$1.25/day PPP poverty line, in 8 countries using a US$2.50/day line, and in 15 countries using a US$4/day line (over and above market income poverty). Net direct taxes are always equalizing and net indirect taxes are equalizing in 17 of the 25 countries. While spending on pre-school and primary school is pro-poor (i.e. the per capita transfer declines with income) in almost all countries, pro-poor secondary school spending is less prevalent, and tertiary education spending tends to be progressive only in relative terms (i.e. equalizing but not pro-poor). Health spending is always equalizing.

Learning from the ʻbestʼ: The impact of tax-benefit systems in Africa

“…Using per capita consumption and the standard poverty line of $1.90 per day, poverty headcount reached 42.3% in sub-Saharan Africa compared to 31% in Latin America (World Bank, 2013). Income inequality as measured by the Gini coefficient was 41.1 in 2000-2009 compared to 36.7 for Asia (Odusola, 2017) but below the levels observed in Latin America (52.1 in the 2000s according to World Bank, 2013, decreasing to 48 in the 2010s, according to Lustig, 2017).…”

“…Several studies also suggest that poverty and inequality in South Africa could have been higher still without its current socio-fiscal policy, which is relatively more redistributive than in most African countries (Inchauste et al, 2015;Higgins and Lustig, 2016;Lustig 2017;World Bank, 2017). These studies are based on an incidence-based method, which consists in imputing taxes and benefits to households using surveys containing both household characteristics and information on tax liability and benefit receipt.…”

“…Our approach is different and based on microsimulation techniques, which facilitate the simulation of counterfactual scenarios. Among these studies, Inchauste et al (2015) showed that South Africa fared better in reducing income inequality compared to most Further evidence using fiscal incidence analyses shows that for Zambia, Tanzania, and Ghana, the poor are impoverished by the fiscal system; headcount poverty increased after taxes and state transfers compared to the before scenario (Higgins and Lustig, 2016;Lustig, 2017;de la Fuente et al, 2017). As shown later, we find supporting evidence using microsimulation techniques: in all countries but South Africa, and in particular Ghana, Zambia, and Mozambique, poverty increases after taxes and transfers while inequality is only marginally reduced.…”

Comparative Evaluation: Review of Bank Support to Tax Policy and Administration, 2007-2016 

“…CIT continues to be more important than PIT in the region, and its redistributional effect is unclear as firms can pass the burden on to consumers (Gómez-Sabaini, Jimenez, and Rossignolo 2012). As a result, redistributional policy in LAC relies almost entirely on public spending (Lustig 2016;World Bank 2013).…”

Approach Paper: Review of IDB Support to Tax Policy and Administration, 2007-2016

“…al, 2012). 5 These characteristics help explain the limited redistributive impact of taxation in LAC and the fact that redistributive policy relies almost entirely on public spending (Lustig, 2016 andWorld Bank, 2013). …”