The Impact of Budgets on the Poor: Tax and Benefit
One 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.
|Date of creation:||01 Aug 2001|
|Contact details of provider:|| Phone: 404-413-0235|
Web page: http://aysps.gsu.edu/isp/index.html
References listed on IDEAS
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.:
- Yitzhaki, Shlomo & Slemrod, Joel, 1991.
"Welfare Dominance: An Application to Commodity Taxation,"
American Economic Review,
American Economic Association, vol. 81(3), pages 480-496, June.
- Shlomo Yitzhaki & Joel Slemrod, 1987. "Welfare Dominance: An Application to Commodity Taxation," NBER Working Papers 2451, National Bureau of Economic Research, Inc.
- Besley, Timothy & Case, Anne, 2000. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," Economic Journal, Royal Economic Society, vol. 110(467), pages 672-694, November.
- Timothy Besley & Anne Case, 1994. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," NBER Working Papers 4956, National Bureau of Economic Research, Inc.
- McLure, Charles Jr., 1975. "General equilibrium incidence analysis : The Harberger model after ten years," Journal of Public Economics, Elsevier, vol. 4(2), pages 125-161, February.
- Hettich,Walter & Winer,Stanley L., 2005. "Democratic Choice and Taxation," Cambridge Books, Cambridge University Press, number 9780521021807, September.
- Hettich,Walter & Winer,Stanley L., 1999. "Democratic Choice and Taxation," Cambridge Books, Cambridge University Press, number 9780521622912.
- Bergstrom, Theodore C & Goodman, Robert P, 1973. "Private Demands for Public Goods," American Economic Review, American Economic Association, vol. 63(3), pages 280-296, June.
- 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 914-927, October.
- 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.
- 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 303-331, May.
- Richard A. Musgrave & Karl E. Case & Herman Leonard, 1974. "The Distribution of Fiscal Burdens and Benefits," Public Finance Review, , vol. 2(3), pages 259-311, July.
- Aaron, Henry & McGuire, Martin, 1970. "Public Goods and Income Distribution," Econometrica, Econometric Society, vol. 38(6), pages 907-920, November.
- Stephen D. Younger, 1999. "The Relative Progressivity of Social Services in Ecuador," Public Finance Review, , vol. 27(3), pages 310-352, May.
- 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.
- Ary Lars Bovenberg, 1986. "Indirect Taxation in Developing Countries; A General Equilibrium Approach," IMF Working Papers 86/1, International Monetary Fund.
- Jan Willem Gunning & Paul Collier, 1999. "Explaining African Economic Performance," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 64-111, March.
- 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.
- Ballard, Charles L. & Fullerton, Don & Shoven, John B. & Whalley, John, 2009. "A General Equilibrium Model for Tax Policy Evaluation," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226036335, September.
- 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, 01.
- R. A. Musgrave & Tun Thin, 1948. "Income Tax Progression, 1929-48," Journal of Political Economy, University of Chicago Press, vol. 56, pages 498-498.
- 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.
- Selden, Thomas M. & Wasylenko, Michael J., 1992. "Benefit incidence analysis in developing countries," Policy Research Working Paper Series 1015, The World Bank.
- 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 257-273, May.
- John J Matovu & Duanjie Chen & Ritva Reinikka-Soininen, 2001. "A Quest for Revenue and Tax Incidence in Uganda," IMF Working Papers 01/24, International Monetary Fund.
- Richard T. Carson, 2011. "Contingent Valuation," Books, Edward Elgar Publishing, number 2489.
- 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.
- Peltzman, Sam, 1980. "The Growth of Government," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 209-287, 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.
- 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 617-628, October.
- 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.
- 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.
- 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 535-552, September.
- Ke-young Chu & Hamid R Davoodi & Sanjeev Gupta, 2000. "Income Distribution and Tax and Government Social Spending Policies in Developing Countries," IMF Working Papers 00/62, International Monetary Fund.
- Martinez-Vazquez, Jorge, 1982. "Fiscal Incidence at the Local Level," Econometrica, Econometric Society, vol. 50(5), pages 1207-1218, September.
- Bradford, David F. & Hildebrandt, Gregory G., 1977. "Observable preferences for public goods," Journal of Public Economics, Elsevier, vol. 8(2), pages 111-131, October.
- Bovenberg, A.L., 1987. "Indirect taxation in developing countries : A general equilibrium approach," Other publications TiSEM adac046e-0845-4c4e-904a-5, Tilburg University, School of Economics and Management.
- 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 414-423, 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.
- N/A, 1985. "General Policy," India Quarterly: A Journal of International Affairs, , vol. 41(1), pages 74-79, January.
- 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.
- N/A, 1985. "General Policy," India Quarterly: A Journal of International Affairs, , vol. 41(1), pages 112-117, January. Full references (including those not matched with items on IDEAS)