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The Impact of Reforming Energy Subsidies, Cash Transfers, and Taxes on Inequality and Poverty in Ghana and Tanzania

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  • Stephen Younger

    (Department of Economics, Ithaca College, Ithaca, NY.)

Abstract

The paper explains methods developed by the Commitment to Equity Institute to simulate policy changes and uses them to assess the distributional consequences of three types of policy reform in Ghana and Tanzania: removal of energy subsidies, expansion of conditional cash transfer programs, and shifts in the balance between indirect and direct taxation. The methods are simple to implement and provide a first-order approximation to the true distributional effects. In both countries energy subsidies are substantial and popular but regressive despite the use of lifeline tariffs for electricity consumption. Their removal would reduce inequality but also increase poverty by a non-trivial amount because the poor do garner some benefit from the subsidies. A simultaneous expansion of cash transfer programs could offset the poverty consequences at significantly lower fiscal cost than that of the energy subsidies. In both countries direct taxes are more progressive than indirect taxes, yet shifting taxation from indirect to direct taxes has relatively little effect on inequality and poverty because the incidence of the two is not so different as, for instance, the difference between taxes and a strongly progressive expenditure like conditional cash transfers.

Suggested Citation

  • Stephen Younger, 2016. "The Impact of Reforming Energy Subsidies, Cash Transfers, and Taxes on Inequality and Poverty in Ghana and Tanzania," Commitment to Equity (CEQ) Working Paper Series 55, Tulane University, Department of Economics.
  • Handle: RePEc:tul:ceqwps:55
    as

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    File URL: http://repec.tulane.edu/RePEc/ceq/ceq55.pdf
    File Function: Revised version, 2017
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    References listed on IDEAS

    as
    1. Mr. David Coady & Ian W.H. Parry & Louis Sears & Baoping Shang, 2015. "How Large Are Global Energy Subsidies?," IMF Working Papers 2015/105, International Monetary Fund.
    2. Stephen D. Younger & Eric Osei-Assibey & Felix Oppong, 2015. "Fiscal Incidence in Ghana," Commitment to Equity (CEQ) Working Paper Series 1335, Tulane University, Department of Economics.
    3. Stephen D. Younger & Flora Myamba & Kenneth Mdadila, 2016. "Fiscal Incidence in Tanzania," African Development Review, African Development Bank, vol. 28(3), pages 264-276, September.
    4. Stephen D. Younger & Flora Myamba & Kenneth Mdadila, 2016. "Fiscal Incidence in Tanzania," Commitment to Equity (CEQ) Working Paper Series 36, Tulane University, Department of Economics.
    5. Stephen D. Younger & Flora Myamba & Kenneth Mdadila, 2016. "Fiscal Incidence in Tanzania," Commitment to Equity (CEQ) Working Paper Series 1336, Tulane University, Department of Economics.
    6. Stephen D. Younger & Eric Osei-Assibey & Felix Oppong, 2015. "Fiscal Incidence in Ghana," Commitment to Equity (CEQ) Working Paper Series 35, Tulane University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Berkouwer, Susanna B. & Biscaye, Pierre E. & Puller, Steven & Wolfram, Catherine D., 2022. "Disbursing emergency relief through utilities: Evidence from Ghana," Journal of Development Economics, Elsevier, vol. 156(C).
    2. Hizkia H. D. Tasik, 2019. "A Tale of Income and Energy in Rural Areas: What Contributes to People s Happiness? Evidence from Eastern Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 9(4), pages 248-255.

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    More about this item

    Keywords

    fiscal incidence; poverty; inequality; subsidy reform; Ghana; Tanzania;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality

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