Is the Moroccan Fiscal System Progressive ? A Shapley Decomposition

Public policies, particularly those related to taxes and subsidies, should help to reduce poverty and inequality. However, the combination of components of these two systems, as implemented, leads sometimes to an increase in poverty and or inequality without being necessarily anticipated. In this policy brief, based on data from the 2019 wave of the Enquête Panel de Ménage from the Observatoire National du Développement Human from Morocco, we first highlight the influence of taxes and subsidies on household incomes. We derive the income variations relating to the tax burden and gains from subsidies for the different population groups. We then characterize taxes and subsidies in terms of their progressiveness and regressiveness. Finally, using a Shapley decomposition, we determine the contribution of each tax and subsidy to poverty and inequality measures. This analysis is done separately for rural and urban areas, useful to formulate recommendations on this basis. Our results show that the tax and subsidy system, taken all together, is redistributive. We can also conclude unambiguously that this system reduces poverty and inequality. However, the value-added tax is regressive in its current form, unlike income tax, which is progressive. Subsidies for primary and secondary education are highly progressive, while those for higher education are regressive, benefiting the wealthiest quintiles. Finally, explicit subsidies on flour, butane gas, and sugar reduce poverty, although they are not pro-poor.1