Fiscal Policy, Income Redistribution and Poverty Reduction in Low and Middle Income Countries

Using comparative fiscal incidence analysis, this paper examines the impact of fiscal policy on inequality and poverty in twenty-nine low-and middle-income countries for circa the year 2010. Success in fiscal redistribution is driven primarily by redistributive efforts (share of social spending to GDP in each country) and the extent to which transfers are targeted to the poor and direct taxes are targeted to the rich. While fiscal policy always reduces inequality, this is not the case with poverty. While spending on preschool and primary school is pro-poor (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 (equalizing, but not pro-poor). Health spending is always equalizing except for in Jordan.