The Effects of Fiscal Policy on Poverty and Inequality in Tajikistan

The design of fiscal policies can either improve or worsen poverty and inequality. To quantify the effects of government taxation and social spending on measures of poverty and inequality in Tajikistan, we use the Commitment to Equity (CEQ) Assessment method with data from a survey called Listening to Tajikistan (2015) and fiscal data from administrative sources over the same period. We find that fiscal policy in Tajikistan contributes to an increase in the poverty rate (at the $US PPP 3.20 per person per day poverty line) by 5.12 percentage points. The results also show that the fiscal system achieves some modest redistribution despite a relatively small social expenditure budget. Although some transfers are well-targeted in Tajikistan, direct and indirect taxes fall heavily on poorer households and offset the poverty-reducing effect of public expenditures. The size of the main targeted social assistance program is insufficient to either remarkably reduce poverty or compensate for tax contributions among the poorest households. The findings suggest that social expenditures intended for the poor do not in practice reach their targets, and expenditures on universal services such as education and health care are spread evenly across the population. The strongest options for greater redistribution to support poor and vulnerable households include i) improved targeting of public expenditures, ii) greater progressivity by redesigning tax policy to collect a larger share of revenue from higher income people, and iii) larger transfer budgets for the best targeted expenditures such as Targeted Social Assistance (TSA).