The Distributional Impact of Fiscal Policy in Georgia

Abstract

This paper uses the 2013 Integrated Household Survey, collected by the Central Statistical Agency of Georgia (GeoStat), and data concerning government revenues and expenditures collected by the Ministry of Finance (MoF) along with other administrative agencies, and applies the CEQ methodology to analyze the progressivity of Georgia's tax and transfer systems. The effects of a variety of policies are individually described, including personal income tax (PIT), value added tax (VAT) and excise tax. In addition, this paper assesses direct and in-kind transfers made by the Georgian government. The distributional effect of indirect subsidies, which are confined to the capital city, Tbilisi, are also considered, as well as the Agricultural Card program. The results show a stark difference between direct and indirect taxation. Direct taxes are progressive, and income tax is largely borne by high-income deciles. Meanwhile, the burden of indirect taxation is more evenly distributed, with the poor losing a higher percentage of income. Thus, the tax system is regressive. Overall, fiscal policy is progressive and equalizing, even before in-kind transfers for early education, and the Medical Insurance for the Poor (MIP), and Universal Health Care (UHC) programs are taken into account. The Targeted Social Assistance Program (TSA) and old-age pensions play a significantly pro-poor role. Fiscal incidence reduces poverty (under $2.50 USD's per day) over 9 percentage points, the largest drop in poverty amongst the countries where CEQ analysis was performed. This paper concludes that excise taxes should be reassigned or eliminated to reduce regressivity, while PIT and the property tax could be broadened, which would expand the tax base.

Fiscal policy, inequality, and the poor in the developing world

“…As for the impact of specific instruments on inequality, direct taxes are equalizing except in Colombia, Ghana and Tanzania, direct transfers are always equalizing, indirect taxes are equalizing (which may come 1 Argentina (Rossignolo, 2018), Armenia (Younger and Khachatryan, 2016), Bolivia (Paz-Arauco et al, 2014a), Brazil (Higgins and Pereira, 2014), Chile (Martinez-Aguilar et al, 2018), Colombia (Lustig and Melendez, 2016), Costa Rica (Sauma and Trejos, 2014a), Dominican Republic (Aristy-Escuder et al, 2018), Ecuador (Llerena et al, 2015), El Salvador (Beneke et al, 2018), Ethiopia (Hill et al, 2017), Georgia (Cancho and Bondarenko, 2017), Ghana (Younger et al, 2017), Guatemala (Cabrera, Lustig, and Moran, 2015), Honduras (Icefi, 2017), Indonesia (Afkar et al, 2017), Jordan (Alam et al, 2017), Mexico (Scott, 2014), Peru (Jaramillo, 2014), Russia (Lopez-Calva et al, 2017), South Africa (Inchauste et al, 2017), Sri Lanka (Arunatilake et al, 2017), Tanzania (Younger et al, 2016a), Tunisia (Shimeles et al, 2018), and Uruguay (Bucheli et al, 2014). 2 The World Bank classifies countries as follows.…”

5. The Sustainable Development Goals, Domestic Resource Mobilization, and the Poor

“…Source: CEQ Data Center on Fiscal Redistribution. Based on Argentina (Rossignolo, 2018); Armenia (Younger and Khachatryan, 2017); Bolivia (Paz-Arauco and others, 2014); Brazil (Higgins and Pereira, 2014); Chile (Martinez-Aguilar and others, 2018); Colombia (Melendez and Martinez, 2015); Costa Rica (Sauma and Trejos, 2014); Dominican Republic (Aristy-Escuder and others, 2018); Ecuador (Llerena and others, 2015); El Salvador (Beneke, Lustig, and Oliva, 2018); Ethiopia (Hill and others, 2017); Georgia (Cancho and Bondarenko, 2017); Ghana (Younger, Osei-Assibey, and Oppong, 2017); Guatemala (Cabrera, Lustig, and Moran, 2015); Honduras (Icefi, 2017); Indonesia (Jellema, Afkar, and Wai-Poi, 2017); Jordan (Alam, Inchauste, and Serajuddin, 2017); Mexico (Scott, 2014); Peru (Jaramillo, 2014); Russia (Lopez-Calva and others, 2017), South Africa (Inchauste and others, 2017); Sri Lanka (Arunatilake, Inchauste, and Lustig, 2017); Tanzania (Younger, Myamba, and Mdadila, 2016); Tunisia (Jouini and others, 2018); and Uruguay (Bucheli and others, 2014) The big risk in setting an ambitious domestic resource mobilization agenda is that in the process governments will impoverish poor people even further. As it stands, the SDGs list of targets would not alert us of such a perverse outcome.…”

“…The data used for the analysis is based on household surveys of around 2010 for the following twenty-five countries: Argentina (Rossignolo, 2018), Armenia (Younger and Khachatryan, 2017), Bolivia (Paz Arauco and others, 2014), Brazil (Higgins and Pereira, 2014), Chile (Martinez-Aguilar and others, 2018), Colombia (Melendez and Martinez, 2015), Costa Rica (Sauma and Trejos, 2014), Dominican Republic (Aristy-Escuder and others, 2018), Ecuador: (Llerena and others, 2015), El Salvador (Beneke and others, 2017), Ethiopia (Hill and others, 2017), Georgia (Cancho and Bondarenko, 2017), Ghana (Younger and others, 2017), Guatemala (Cabrera, Lustig, and Moran, 2015), Honduras (Icefi, 2017); Indonesia (Jellema and others, 2017), Jordan (Alam and others, 2017), Mexico (Scott, 2014), Peru (Jaramillo, 2014), Russia (Lopez-Calva and others, 2017), South Africa (Inchauste and others, 2017), Sri Lanka (Arunatilake and others, 2017), Tanzania (Younger and others, 2016), Tunisia (Jouini and others, 2018), and Uruguay (Bucheli and others, 2014).…”

“…Georgia has a noncontributory public pension scheme only and, therefore, they are only treated as a transfer. Ethiopia (Hill and others, 2017); Georgia (Cancho and Bondarenko, 2017); Ghana (Younger, Osei-Assibey, and Oppong, 2017); Guatemala (Cabrera, Lustig, and Moran, 2015); Honduras (Icefi, 2017); Indonesia (Jellema, Afkar, and Wai-Poi, 2017); Jordan (Alam, Inchauste, and Serajuddin, 2017); Mexico (Scott, 2014); Peru (Jaramillo, 2014); Russia (Lopez-Calva and others, 2017), South Africa (Inchauste and others, 2017); Sri Lanka (Arunatilake, Inchauste, and Lustig, 2017); Tanzania (Younger, Myamba, and Mdadila, 2016); Tunisia (Jouini and others, 2018); and Uruguay (Bucheli and others, 2014) As shown by Higgins and Lustig (2016), conventional measures of poverty such as the headcount ratio can fail to capture whether the poor are made worse off (and the nonpoor made poor) by fiscal interventions. A stylized illustration of fiscal impoverishment can be seen in figure 1.…”

The Impact of Taxes, Transfers, and Subsidies on Inequality and Poverty in Uganda

“…Source: CEQ Data Center on Fiscal Redistribution. Based on Bolivia (Paz-Arauco and others, 2014b); Ethiopia (Hill, Tsehaye, and Woldehanna, 2014); Ghana (Younger, Osei-Assibey, and Oppong, 2016); Honduras (Icefi, 2017a); Nicaragua (Icefi, 2017b); and Tanzania (Younger, Myamba, and Mdadila, 2016b (Beneke, Lustig, and Oliva, 2014); Ethiopia (Hill, Tsehaye, and Woldehanna, 2014); Georgia (Cancho and Bondarenko, 2017); Ghana (Younger, Osei-Assibey, and Oppong, 2016); Guatemala ; Honduras (Icefi, 2017a); Indonesia (Jellema, Wai-Poi, and Afkar, 2017); Iran (Enami, Lustig, and Taqdiri, 2017b); Jordan (Alam, Inchauste, and Serajuddin, 2017); Mexico (Scott, 2013); Nicaragua (Icefi, 2017b); Peru (Jaramillo, 2015); Russia (Malytsin and Popova, 2016), South Africa (Inchauste and others, 2016); Sri Lanka (Arunatilake and others, 2016); Tanzania (Younger, Myamba, and Mdadila, 2016b); Tunisia (Jouini and others, 2015); Uruguay (Bucheli and others, 2014); and Venezuela (Molina, 2016 Notes: The dotted line is the slope obtained from a simple regression with personal and payroll taxes/GDP as the dependent variable, t statistics in parentheses * p<0.1, ** p<0.05, *** p<0.01. The year for which the analysis was conducted is in parenthesis.…”