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Equity and Fiscal Policy; The Income Distribution Effects of Taxation and Social Spending in Central America

Author

Listed:
  • Rodrigo Cubero
  • Ivanna Vladkova Hollar

Abstract

How does fiscal policy fare in improving the underlying income distribution in Central America? We integrate the data from a number of existing tax and public expenditure studies for the countries in the region and find that the distributional effect of taxation is regressive but small. In contrast, the redistributive impact of social spending is large and progressive, leading to a progressive net redistributive effect in all countries of the region. We also show that raising tax revenues and devoting the proceeds to social spending would unambiguously improve the income of the poorest households.

Suggested Citation

  • Rodrigo Cubero & Ivanna Vladkova Hollar, 2010. "Equity and Fiscal Policy; The Income Distribution Effects of Taxation and Social Spending in Central America," IMF Working Papers 10/112, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/112
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Barrientos, Armando, 2011. "On the Distributional Implications of Social Protection Reforms in Latin America," WIDER Working Paper Series 069, World Institute for Development Economic Research (UNU-WIDER).
    2. Margarita Beneke & Nora Lustig, 2015. "El Impacto de los Impuestos y el Gasto Social en la Desigualdad y la Pobreza en El Salvador," Commitment to Equity (CEQ) Working Paper Series 1326, Tulane University, Department of Economics.
    3. Gómez Sabaini, Juan Carlos & Morán, Dalmiro, 2014. "Tax policy in Latin America: Assessment and guidelines for a second generation of reforms," Macroeconomía del Desarrollo 133, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Margarita Beneke & Nora Lustig, 2015. "El Impacto de los Impuestos y el Gasto Social en la Desigualdad y la Pobreza en El Salvador," Commitment to Equity (CEQ) Working Paper Series 26, Tulane University, Department of Economics.
    5. repec:pal:imfecr:v:65:y:2017:i:2:d:10.1057_s41308-016-0021-1 is not listed on IDEAS
    6. Paul Mosley, 2012. "The politics of what works for the poor in public expenditure and taxation: a review," Global Development Institute Working Paper Series esid-011-12, GDI, The University of Manchester.
    7. Cornia, Giovanni Andrea & Martorano, Bruno, 2011. "A New Fiscal Pact, Tax Policy Changes and Income Inequality," WIDER Working Paper Series 070, World Institute for Development Economic Research (UNU-WIDER).
    8. repec:hpe:journl:y:2016:v:219:i:4:p:93-120 is not listed on IDEAS
    9. repec:ilo:ilowps:478309 is not listed on IDEAS
    10. Cabrera, Maynor & Lustig, Nora & Morán, Hilcías E., 2015. "Fiscal Policy, Inequality, and the Ethnic Divide in Guatemala," World Development, Elsevier, vol. 76(C), pages 263-279.
    11. Antonio David & Martin Petri, 2013. "Inclusive Growth and the Incidence of Fiscal Policy in Mauritius; Much Progress, But More Could be Done," IMF Working Papers 13/116, International Monetary Fund.
    12. Margarita Beneke & Nora Lustig & Jose Andres Oliva, 2016. "The Impact of Taxes and Social Spending on Inequality and Poverty in El Salvador," Commitment to Equity (CEQ) Working Paper Series 57, Tulane University, Department of Economics.
    13. Guerra, Maria Lucia., 2012. "Implications of the recent macroeconomic policies on employment and labour market outcomes in Peru," ILO Working Papers 994783093402676, International Labour Organization.
    14. Isis Gaddis & Lionel Demery, 2012. "Benefit incidence analysis, needs and demography. Measurement issues and an empirical study for Kenya," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 122, Courant Research Centre PEG.
    15. repec:pje:journl:article13wini is not listed on IDEAS
    16. Cabrera, Maynor & Lustig, Nora & Morán, Hilcías E., 2015. "Fiscal Policy, Inequality, and the Ethnic Divide in Guatemala," World Development, Elsevier, vol. 76(C), pages 263-279.
    17. Arshad Ali Bhatti & Zakia Batool & Hasnain A. Naqvi, 2015. "Fiscal Policy and Its Role in Reducing Income Inequality- A CGE Analysis for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(4), pages 843-864.

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