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Measuring Impoverishment: An Overlooked Dimension of Fiscal Incidence

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Author Info

  • Sean Higgins

    ()
    (Department of Economics, Tulane University)

  • Nora Lustig

    ()
    (Department of Economics, Tulane University)

Abstract

The effect of taxes and benefits on the poor is usually measured using standard poverty and inequality indicators, stochastic dominance tests, and measures of progressivity and horizontal inequity. However, these measures can fail to capture an important aspect: that some of the poor are made poorer (or some of the non-poor made poor) by the tax-benefit system. We call this impoverishment and formally establish the relationships between impoverishment, stochastic dominance tests, horizontal inequity, and progressivity measures. The directional mobility literature provides a useful framework to measure impoverishment. We propose using a transition matrix and income loss matrix, and establish a mobility dominance criterion to compare alternate tax-benefit systems. We illustrate with data from Brazil.

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File URL: http://econ.tulane.edu/RePEc/pdf/tul1315.pdf
File Function: Second Version, September 2013
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Bibliographic Info

Paper provided by Tulane University, Department of Economics in its series Working Papers with number 1315.

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Length: 14 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:tul:wpaper:1315

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Keywords: stochastic dominance; poverty; fiscal incidence; mobility;

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  1. Lopez-Calva, Luis F. & Ortiz-Juarez, Eduardo, 2011. "A vulnerability approach to the definition of the middle class," Policy Research Working Paper Series 5902, The World Bank.
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