IDEAS home Printed from https://ideas.repec.org/p/tul/ceqwps/63.html
   My bibliography  Save this paper

The Incidence of Taxes and Spending in Sri Lanka

Author

Listed:
  • Nisha Arunatilake

    (Institute of Policy Studies of Sri Lanka)

  • Gabriela Inchauste

    (Poverty and Equity Global Practice at the World Bank)

  • Nora Lustig

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

Abstract

Sri Lanka has made substantial progress in reducing poverty over the past decade. However, important social and economic development needs persist at a time when revenue collections have been disappointing, reducing the government’s ability to expand spending. In this context, this paper has sought to evaluate the effectiveness of fiscal policy in addressing inequality and accelerating poverty reduction. The exercise consisted of undertaking incidence analysis of the major tax and transfer programs individually, and then combining them to evaluate the incidence of fiscal policy as a whole. Although we could not carry out incidence analysis of all budget items, we have analyzed the major tax and spending items for which individual tax and benefits can be assigned to households using microdata. The analysis finds that taxes and social spending were redistributive and poverty-reducing overall. However, given the country’s relatively low revenue and the limited fiscal space, overall social spending was small, leading to very limited impacts. On the spending side, direct transfers are absolutely progressive, so that their marginal contribution is both equalizing and poverty-reducing. In contrast, spending on indirect subsidies increased with a large part of the resources benefiting nonpoor households. Finally, the analysis found that in kind transfers in the form of education and health are equalizing. Going forward, any efforts to reform taxes could usefully include distributional analysis to assess their impact.

Suggested Citation

  • Nisha Arunatilake & Gabriela Inchauste & Nora Lustig, 2017. "The Incidence of Taxes and Spending in Sri Lanka," Commitment to Equity (CEQ) Working Paper Series 63, Tulane University, Department of Economics.
  • Handle: RePEc:tul:ceqwps:63
    as

    Download full text from publisher

    File URL: http://repec.tulane.edu/RePEc/ceq/ceq63.pdf
    File Function: First version, 2017
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
    2. Ceriani,Lidia & Inchauste Comboni,Maria Gabriela & Olivieri,Sergio Daniel, 2015. "Understanding poverty reduction in Sri Lanka : evidence from 2002 to 2012/13," Policy Research Working Paper Series 7446, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Junyi Zhu, 2014. "Bracket Creep Revisited - with and without r > g: Evidence from Germany," Journal of Income Distribution, Ad libros publications inc., vol. 23(3), pages 106-158, November.
    2. van Doorslaer, Eddy & Wagstaff, Adam & van der Burg, Hattem & Christiansen, Terkel & Citoni, Guido & Di Biase, Rita & Gerdtham, Ulf-G. & Gerfin, Mike & Gross, Lorna & Hakinnen, Unto, 1999. "The redistributive effect of health care finance in twelve OECD countries," Journal of Health Economics, Elsevier, vol. 18(3), pages 291-313, June.
    3. B. Essama‐Nssah & Peter J. Lambert, 2009. "Measuring Pro‐Poorness: A Unifying Approach With New Results," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 752-778, September.
    4. Roberto Iacono & Elisa Palagi, 2020. "Still the lands of equality? On the heterogeneity of individual factor income shares in the Nordics," LEM Papers Series 2020/13, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    5. Onrubia Fernández, Jorge & Picos, Fidel & Rodado, María del Carmen, 2019. "Shifting tax burden to top income earners: What is the best way to reduce inequality?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 13, pages 1-31.
    6. Dissou, Yazid & Siddiqui, Muhammad Shahid, 2014. "Can carbon taxes be progressive?," Energy Economics, Elsevier, vol. 42(C), pages 88-100.
    7. Michal Horvath & Matus Senaj & Zuzana Siebertova & Norbert Svarda, 2015. "The End of the Flat Tax Experiment in Slovakia," Discussion Papers 15/12, Department of Economics, University of York.
    8. John Bishop & K. Chow & John Formby & Chih-Chin Ho, 1997. "Did Tax Reform Reduce Actual US Progressivity? Evidence from the Taxpayer Compliance Measurement Program," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(2), pages 177-197, May.
    9. Stephen P. Jenkins & Philippe Van Kerm, 2006. "Trends in income inequality, pro-poor income growth, and income mobility," Oxford Economic Papers, Oxford University Press, vol. 58(3), pages 531-548, July.
    10. Paci, Pierella & Sasin, Martin J. & Verbeek, Jos, 2004. "Economic growth, income distribution, and poverty in Poland during transition," Policy Research Working Paper Series 3467, The World Bank.
    11. Adam Wagstaff & Magnus Lindelow, 2007. "Progressivity in the financing of decentralized government health programs: a decomposition," Health Economics, John Wiley & Sons, Ltd., vol. 16(11), pages 1271-1275.
    12. Guy Gilbert & Alain Guengant, 2004. "Évaluation de la performance péréquatrice des concours financiers de l'État aux communes," Économie et Statistique, Programme National Persée, vol. 373(1), pages 81-108.
    13. Nolan, Matt, 2018. "Horizontal and Vertical Equity in the New Zealand Tax-Transfer System: 1988-2013," Working Paper Series 7657, Victoria University of Wellington, Chair in Public Finance.
    14. Peter Lambert & Thor Thoresen, 2009. "Base independence in the analysis of tax policy effects: with an application to Norway 1992–2004," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(2), pages 219-252, April.
    15. Katie M. Jajtner & Sophie Mitra & Christine Fountain & Austin Nichols, 2020. "Rising Income Inequality Through a Disability Lens: Trends in the United States 1981–2018," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 151(1), pages 81-114, August.
    16. Immervoll, Herwig, 2004. "Falling up the stairs: an exploration of the effects of 'bracket creep' on household incomes," EUROMOD Working Papers EM3/04, EUROMOD at the Institute for Social and Economic Research.
    17. Vanda Almeida, 2020. "Income Inequality and Redistribution in the Aftermath of the 2007-2008 Crisis: The U.S. Case," National Tax Journal, National Tax Association;National Tax Journal, vol. 73(1), pages 77-114, March.
    18. Achille Vernizzi & Edyta Mazurek, 2013. "Some Considerations on Measuring the Progressive Principle Violations and the Potential Equity in Income Tax Systems," Statistics in Transition new series, Główny Urząd Statystyczny (Polska), vol. 14(3), pages 467-486, September.
    19. Satya Paul & Sriram Shankar, 2020. "An alternative single parameter functional form for Lorenz curve," Empirical Economics, Springer, vol. 59(3), pages 1393-1402, September.
    20. Rieth, Malte & Checherita-Westphal, Cristina & Attinasi, Maria-Grazia, 2016. "Personal income tax progressivity and output volatility: Evidence from OECD countries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 968-996.

    More about this item

    Keywords

    fiscal policy; fiscal incidence; social spending; inequality; poverty; taxes; Sri Lanka;
    All these keywords.

    JEL classification:

    • 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
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tul:ceqwps:63. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/detulus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nora Lustig (email available below). General contact details of provider: https://edirc.repec.org/data/detulus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.