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Fiscal Policy, Inequality and the Poor in the Developing World

Listed author(s):
  • Nora Lustig

    ()

    (Department of Economics, Tulane University)

Using comparable fiscal incidence analysis, this paper examines the impact of fiscal policy on inequality and poverty in twenty-five countries for around 2010. Success in fiscal redistribution is driven primarily by redistributive effort (share of social spending to GDP in each country) and the extent to which transfers/subsidies are targeted to the poor and direct taxes targeted to the rich. While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases poverty in four countries using US$1.25/day PPP poverty line, in 8 countries using US$2.50/day line, and 15 countries using the US$4/day line (over and above market income poverty). While spending on pre-school and primary school is pro-poor (i.e., 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 (i.e., equalizing but not pro-poor). Health spending is always equalizing except for Jordan.

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File URL: http://econ.tulane.edu/RePEc/pdf/tul1612r.pdf
File Function: First Version, October 2016
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Paper provided by Tulane University, Department of Economics in its series Working Papers with number 1612.

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Date of creation: Oct 2016
Handle: RePEc:tul:wpaper:1612
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  1. Margarita Beneke & Nora Lustig, 2015. "El Impacto de los Impuestos y el Gasto Social en la Desigualdad y la Pobreza en El Salvador," Commitment to Equity (CEQ) Working Paper Series 1326, Tulane University, Department of Economics.
  2. Abebe Shimeles & Ahmed Moummi & Nizar Jouini & Nora Lustig, 2016. "Fiscal Incidence and Poverty Reduction: Evidence from Tunisia," Commitment to Equity (CEQ) Working Paper Series 1338, Tulane University, Department of Economics.
  3. Goñi, Edwin & Humberto López, J. & Servén, Luis, 2011. "Fiscal Redistribution and Income Inequality in Latin America," World Development, Elsevier, vol. 39(9), pages 1558-1569, September.
  4. Branko Milanovic & Sean Higgins & Nora Lustig & Whitney Ruble & Timothy M. Smeeding, 2016. "Comparing the Incidence of Taxes and Social Spending in Brazil and the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62, pages 22-46, 08.
  5. Kakwani, Nanok C, 1977. "Measurement of Tax Progressivity: An International Comparison," Economic Journal, Royal Economic Society, vol. 87(345), pages 71-80, March.
  6. Freddy Paúl Llerena Pinto & M. Cristhina Llerena Pinto & M. Andrea Llerena Pinto, 2015. "Social Spending, Taxes and Income Redistribution in Ecuador," Commitment to Equity (CEQ) Working Paper Series 28, Tulane University, Department of Economics.
  7. Stephen D. Younger & Flora Myamba & Kenneth Mdadila, 2016. "Fiscal Incidence in Tanzania," African Development Review, African Development Bank, vol. 28(3), pages 264-276, 09.
  8. Cabrera, Maynor & Lustig, Nora & Morán, Hilcías E., 2015. "Fiscal Policy, Inequality, and the Ethnic Divide in Guatemala," World Development, Elsevier, vol. 76(C), pages 263-279.
  9. Herwig Immervoll & Horacio Levy & José Ricardo Nogueira & Cathal O´Donoghue & Rozane Bezerra de Siqueira, 2005. "The Impact of Brazil´s Tax-Benefit System on Inequality and Poverty," Ibero America Institute for Econ. Research (IAI) Discussion Papers 117, Ibero-America Institute for Economic Research.
  10. Immervoll, Herwig & Richardson, Linda, 2011. "Redistribution Policy and Inequality Reduction in OECD Countries: What Has Changed in Two Decades?," IZA Discussion Papers 6030, Institute for the Study of Labor (IZA).
  11. 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.
  12. Pablo Sauma & Juan Diego Trejos, 2014. "Universidad de Costa Rica," Commitment to Equity (CEQ) Working Paper Series 1318S, Tulane University, Department of Economics.
  13. Abebe Shimeles & Ahmed Moummi & Nizar Jouini & Nora Lustig, 2016. "Fiscal Incidence and Poverty Reduction: Evidence from Tunisia," Commitment to Equity (CEQ) Working Paper Series 38, Tulane University, Department of Economics.
  14. Freddy Paúl Llerena Pinto & M. Cristhina Llerena Pinto & M. Andrea Llerena Pinto, 2015. "Social Spending, Taxes and Income Redistribution in Ecuador," Commitment to Equity (CEQ) Working Paper Series 1328, Tulane University, Department of Economics.
  15. 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.
  16. 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.
  17. Sean Higgins & Claudiney Pereira, 2014. "The Effects of Brazil’s Taxation and Social Spending on the Distribution of Household Income," Public Finance Review, , vol. 42(3), pages 346-367, May.
  18. Michael Förster & Peter Whiteford, 2009. "How much Redistribution do Welfare States Achieve? The Role of Cash Transfers and Household Taxes," CESifo DICE Report, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(3), pages 34-41, October.
  19. Immervoll, Herwig & O'Donoghue, Cathal, 2001. "Imputation of gross amounts from net incomes in household surveys: an application using EUROMOD," EUROMOD Working Papers EM1/01, EUROMOD at the Institute for Social and Economic Research.
  20. 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.
  21. David E. Sahn & Stephen D. Younger, 2000. "Expenditure incidence in Africa: microeconomic evidence," Fiscal Studies, Institute for Fiscal Studies, vol. 21(3), pages 329-347, September.
  22. Maynor Cabrera, Nora Lustig, and Hilcías E. Morán, 2015. "Fiscal Policy, Inequality, and the Ethnic Divide in Guatemala - Working Paper 397," Working Papers 397, Center for Global Development.
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