The Impact of Budgets on the Poor: Tax and Benefit
AbstractOne of the most important goals of government policy is to address inequalities in the distribution of income and to try to improve the welfare of the poor. An important part of the theory and practice of public finance is dedicated to conceptualizing and measuring how the revenue and expenditure sides of government budgets affect the distribution of income among households. This is known as tax and expenditure incidence, or in short, fiscal incidence. This body of research allows us to understand how government policies change the distribution of income, how equitable these changes may be, and, in particular, how government policies actually help the poor. Establishing the incidence of taxes is important because who actually bears the burden of taxes is generally quite different from those legally liable to make payment to the tax authorities. Establishing the incidence of government expenditures is important because not all expenditures benefit households of different income levels to the same extent. Even those government expenditures intended to benefit low income households may not do so because poor targeting or difficulties exist for the poor to have access to the public services. In short, the impact of government budgets on the distribution of income and the status of the poor is not immediate and general impressions regarding what the impact may be can be quite mistaken.Incidence analysis is not only important but also, if done correctly, complex and difficult. Incidence analysis contains a blend of positive and normative issues. Asking the question of who benefits from and who pays for government services is eminently a positive question. However, judging the adequacy, desirability or rightness of these results is a normative question. Normative values are likely to differ, sometimes quite significantly across individuals, so we should not expect to always find consensus on the desirable degree of redistribution. Nevertheless, it would be a mistake to shy away from distributional and equity issues because they cannot be scientific. The distributional impact of government policy is in the core of what policy makers and ordinary citizens expect economists to do.Ultimately, tax and benefit incidence analysis is an effective tool to review whether government tax policies and expenditure programs have the desired impact on income distribution and on the poor. Major tax reforms and large government expenditure programs are routinely undertaken in many countries with specific redistributional objectives, including lifting tax burdens borne by lower income groups and directly helping the poor. For example, understanding the incidence of expenditures on education and health vis-?-vis the poor is important because improved health and education status have been shown to be the most effective means of escaping poverty. Tax policy and public expenditures, especially the latter, are potentially powerful tools to combat poverty. Thus, an important question is whether government tax and expenditure policies have the intended effects. This is what benefit incidence analysis does.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper0110.
Length: 70 pages
Date of creation: 01 Aug 2001
Date of revision:
Contact details of provider:
Web page: http://aysps.gsu.edu/isp/index.html
Budget; Poor ; Tax and Benefit;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Atkinson, A.B., 2000. "Increased Income Inequality in OECD Countries and the Redistributive Impact of the Government Budget," Research Paper 202, World Institute for Development Economics Research.
- Paul J. Gertler & Luis Locay & Warren C. Sanderson, 1987.
"Are User Fees Regressive? The Welfare Implications of Health Care Financing Proposals in Peru,"
NBER Working Papers
2299, National Bureau of Economic Research, Inc.
- Gertler, Paul & Locay, Luis & Sanderson, Warren, 1987. "Are user fees regressive? : The welfare implications of health care financing proposals in Peru," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 67-88.
- Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
- John Matovu & Duanjie Chen & Ritva Reinikka-Soininen, 2001. "A Quest for Revenue and Tax Incidence in Uganda," IMF Working Papers 01/24, International Monetary Fund.
- Devarajan, Shantayanan & Fullerton, Don & Musgrave, Richard A., 1980. "Estimating the distribution of tax burdens : A comparison of different approaches," Journal of Public Economics, Elsevier, vol. 13(2), pages 155-182, April.
- Lanjouw, Peter & Ravallion, Martin, 1999. "Benefit Incidence, Public Spending Reforms, and the Timing of Program Capture," World Bank Economic Review, World Bank Group, vol. 13(2), pages 257-73, May.
- Blejer, Mario I & Guerrero, Isabel, 1990. "The Impact of Macroeconomic Policies on Income Distribution: An Empirical Study of the Philippines," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 414-23, August.
- Devarajan, Shantayanan & Hossain, Shaikh I., 1998. "The combined incidence of taxes and public expenditures in the Philippines," World Development, Elsevier, vol. 26(6), pages 963-977, June.
- Ary Lars Bovenberg, 1986.
"Indirect Taxation in Developing Countries: A General Equilibrium Approach,"
IMF Working Papers
86/1, International Monetary Fund.
- A. Lans Bovenberg, 1987. "Indirect Taxation in Developing Countries: A General Equilibrium Approach," IMF Staff Papers, Palgrave Macmillan, vol. 34(2), pages 333-373, June.
- Bovenberg, A.L., 1987. "Indirect taxation in developing countries: A general equilibrium approach," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152947, Tilburg University.
- Selden, Thomas M. & Wasylenko, Michael J., 1992. "Benefit incidence analysis in developing countries," Policy Research Working Paper Series 1015, The World Bank.
- Hettich,Walter & Winer,Stanley L., 2005. "Democratic Choice and Taxation," Cambridge Books, Cambridge University Press, number 9780521021807, October.
- Paul Collier & Jan Willem Gunning, 1997.
"Explaining African economic performance,"
CSAE Working Paper Series
1997-02.2, Centre for the Study of African Economies, University of Oxford.
- Yitzhaki, Shlomo, 1983. "On an Extension of the Gini Inequality Index," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 617-28, October.
- Ke-young Chu & Hamid Reza Davoodi & Sanjeev Gupta, 2000. "Income Distribution and Tax and Government Social Spending Policies in Developing Countries," IMF Working Papers 00/62, International Monetary Fund.
- Bergstrom, Theodore C & Goodman, Robert P, 1973. "Private Demands for Public Goods," American Economic Review, American Economic Association, vol. 63(3), pages 280-96, June.
- David E. Sahn & Stephen D. Younger, 2000. "Expenditure incidence in Africa: microeconomic evidence," Fiscal Studies, Institute for Fiscal Studies, vol. 21(3), pages 329-347, September.
- Carson, Richard T. & Hanemann, W. Michael, 2006. "Contingent Valuation," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 17, pages 821-936 Elsevier.
- Bradford, David F. & Hildebrandt, Gregory G., 1977. "Observable preferences for public goods," Journal of Public Economics, Elsevier, vol. 8(2), pages 111-131, October.
- Aaron, Henry & McGuire, Martin, 1970. "Public Goods and Income Distribution," Econometrica, Econometric Society, vol. 38(6), pages 907-20, November.
- Shah, Anwar & Whalley, John, 1991. "Tax Incidence Analysis of Developing Countries: An Alternative View," World Bank Economic Review, World Bank Group, vol. 5(3), pages 535-52, September.
- Besley, Timothy & Case, Anne, 2000.
"Unnatural Experiments? Estimating the Incidence of Endogenous Policies,"
Royal Economic Society, vol. 110(467), pages F672-94, November.
- Timothy Besley & Anne Case, 1994. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," NBER Working Papers 4956, National Bureau of Economic Research, Inc.
- R. A. Musgrave & Tun Thin, 1948. "Income Tax Progression, 1929-48," Journal of Political Economy, University of Chicago Press, vol. 56, pages 498.
- Martinez-Vazquez, Jorge, 1982. "Fiscal Incidence at the Local Level," Econometrica, Econometric Society, vol. 50(5), pages 1207-18, September.
- Shlomo Yitzhaki & Joel Slemrod, 1987.
"Welfare Dominance: An Application to Commodity Taxation,"
NBER Working Papers
2451, National Bureau of Economic Research, Inc.
- Yitzhaki, Shlomo & Slemrod, Joel, 1991. "Welfare Dominance: An Application to Commodity Taxation," American Economic Review, American Economic Association, vol. 81(3), pages 480-96, June.
- Younger, Stephen D, et al, 1999. "Tax Incidence in Madagascar: An Analysis Using Household Data," World Bank Economic Review, World Bank Group, vol. 13(2), pages 303-31, May.
- Peltzman, Sam, 1980.
"The Growth of Government,"
Journal of Law and Economics,
University of Chicago Press, vol. 23(2), pages 209-87, October.
- Sam Peltzman, 1980. "The Growth of Government," University of Chicago - George G. Stigler Center for Study of Economy and State 1, Chicago - Center for Study of Economy and State.
- Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "A General Equilibrium Model for Tax Policy Evaluation," NBER Books, National Bureau of Economic Research, Inc, number ball85-1, December.
- Jameson Boex, 2003. "The incidence of local government allocations in Tanzania," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0311, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- Essama-Nssah, B., 2008. "Assessing the redistributive effect of fiscal policy," Policy Research Working Paper Series 4592, The World Bank.
- Bird, Richard M. & Zolt, Eric M., 2005. "The limited role of the personal income tax in developing countries," Journal of Asian Economics, Elsevier, vol. 16(6), pages 928-946, December.
- Jorge Martinez-Vazquez & Blanca Moreno-Dodson & VIoleta Vulovic, 2012.
"The Impact of Tax and Expenditure Policies on Income Distribution: Evidence from a Large Panel of Countries,"
International Center for Public Policy Working Paper Series, at AYSPS, GSU
paper1225, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- Jorge Martínez-Vázquez & Violeta Vulovic & Blanca Moreno Dodson, 2012. "The Impact of Tax and Expenditure Policies on Income Distribution: Evidence from a Large Panel of Countries," Hacienda Pública Española, IEF, vol. 200(1), pages 95-130, March.
- Richard M. bird, 2003. "Taxation in Latin America: Reflections on Sustainability and the Balance between Equity and Efficiency," International Tax Program Papers 0306, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
- Mawuli Gaddah & Alistair Munro, 2011. "The Progressivity Of Health Care Services In Ghana," GRIPS Discussion Papers 11-14, National Graduate Institute for Policy Studies.
- Mawuli Gaddah & Alistair Munro, 2011. "The Rich or the Poor: Who Gains from Public Education Spending in Ghana?," GRIPS Discussion Papers 11-12, National Graduate Institute for Policy Studies.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Paul Benson).
If references are entirely missing, you can add them using this form.