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Fiscal Policy, Inequality and the Poor in the Developing World - Working Paper 441

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  • Nora Lustig

Abstract

Using comparable fiscal incidence analysis, this paper examines the impact of fiscal policy on inequality and poverty in twenty-five 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 to the poor and direct taxes targeted to the rich. While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases poverty in four countries using US$1.25/day PPP poverty line, in 8 countries using US$2.50/day line, and 15 countries using the US$4/day line (over and above market income poverty). 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 except for Jordan.

Suggested Citation

  • Nora Lustig, 2016. "Fiscal Policy, Inequality and the Poor in the Developing World - Working Paper 441," Working Papers 441, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:441
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    File URL: http://www.cgdev.org/publication/fiscal-policy-inequality-poor-developing-world
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    Keywords

    fiscal incidence; social spending; inequality; poverty; developing countries;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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