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Fiscal Policy, Inequality and Poverty in Iran: Assessing the Impact and Effectiveness of Taxes and Transfer

Author

Listed:
  • Ali Enami

    () (Stone Center for Latin American Studies, Department of Economics, Tulane University. Commitment to Equity Institute (CEQI).)

  • Nora Lustig

    () (Stone Center for Latin American Studies, Department of Economics, Tulane University. Commitment to Equity Institute (CEQI).)

  • Alireza Taqdiri

    () (University of Akron, OH, USA)

Abstract

Using the Iranian Household Expenditure and Income Survey (HEIS) for 2011/12, we apply the marginal contribution approach to determine the impact and effectiveness of each fiscal intervention, and the fiscal system as a whole, on inequality and poverty. Net direct and indirect taxes combined reduce the Gini coefficient by 0.0644 points and the headcount ratio by 61 percent. When the monetized value of in-kind benefits in education and health are included, the reduction in inequality is 0.0919 Gini points. Based on the magnitudes of the marginal contributions, we find that the main driver of these reduction is the Targeted Subsidy Program, a universal cash transfer program implemented in 2010 to compensate individuals for the elimination of energy subsidies. The main reduction in poverty occurs in rural areas, where the headcount ratio declines from 44 to 23 percent. In urban areas, fiscally-induced poverty reduction is more modest: the headcount ratio declines from 13 to 5 percent. Taxes and transfers are similar in their effectiveness in achieving their inequality-reducing potential. By achieving 40 percent of its inequality-reducing potential, the income tax is the most effective intervention on the revenue side. On the spending side, Social Assistance transfers are the most effective and they achieve 45 percent of their potential. Taxes are especially effective in raising revenue without causing poverty to rise, indicating that the poor are largely spared from being taxed. In contrast, since the bulk of transfers are not targeted to the poor, they are not very effective: the most effective ones achieve 20 percent of their poverty reduction potential. The effectiveness of the Targeted Subsidy Program could be improved by eliminating the transfer to top deciles and re-allocating the freed funds to the poor.

Suggested Citation

  • Ali Enami & Nora Lustig & Alireza Taqdiri, 2016. "Fiscal Policy, Inequality and Poverty in Iran: Assessing the Impact and Effectiveness of Taxes and Transfer," Commitment to Equity (CEQ) Working Paper Series 48, Tulane University, Department of Economics, revised Jun 2017.
  • Handle: RePEc:tul:ceqwps:48
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    File URL: http://repec.tulane.edu/RePEc/ceq/ceq48.pdf
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Fiscal Policy, Inequality, and Poverty in Iran: Assessing the Impact and Effectiveness of Taxes and Transfers
      by pmakdissi in NEP-ARA blog on 2017-05-15 23:50:40

    Citations

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    Cited by:

    1. Ali Enami & Nora Lustig, 2018. "Inflation and the Erosion of the Poverty Reduction Impact of Iran's Universal Cash Transfer," Commitment to Equity (CEQ) Working Paper Series 68, Tulane University, Department of Economics.
    2. repec:eee:socmed:v:195:y:2017:i:c:p:1-11 is not listed on IDEAS
    3. Nora Lustig, 2017. "Fiscal Policy, Income Redistribution and Poverty Reduction in Low and Middle Income Countries," Commitment to Equity (CEQ) Working Paper Series 54, Tulane University, Department of Economics.
    4. Ali Enami, 2016. "An Application of the CEQ Effectiveness Indicators: The Case of Iran," Commitment to Equity (CEQ) Working Paper Series 58, Tulane University, Department of Economics.
    5. repec:idb:idbbks:9152 is not listed on IDEAS

    More about this item

    Keywords

    Inequality; poverty; marginal contribution; CEQ framework; policy simulation;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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