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

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  • Nora Lustig

    (Department of Economics, Tulane University)

Abstract

Using comparable fiscal incidence analysis, this paper examines the impact of fiscal policy on inequality and poverty in twenty-nine low and middle income countries for around 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 targeted to the rich. While fiscal policy always reduces inequality, this is not the case with poverty. While spending on pre-school 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.

Suggested Citation

  • Nora Lustig, 2017. "Fiscal Policy, Income Redistribution and Poverty Reduction in Low and Middle Income Countries," Working Papers 1701, Tulane University, Department of Economics, revised Aug 2017.
  • Handle: RePEc:tul:wpaper:1701
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    References listed on IDEAS

    as
    1. Marisa Bucheli & Nora Lustig & Máximo Rossi & Florencia Amábile, 2012. "Social Spending, Taxes and Income Redistribution in Uruguay," Documentos de Trabajo (working papers) 1212, Department of Economics - dECON.
    2. Martinez Aguilar,Sandra Natalia & Fuchs Tarlovsky,Alan & Ortiz-Juarez,Eduardo & Del Carmen Hasbun,Giselle Eugenia, 2017. "The impact of fiscal policy on inequality and poverty in Chile," Policy Research Working Paper Series 7939, The World Bank.
    3. Darío Rossignolo, 2016. "Taxes, Expenditures, Poverty and Income Distribution in Argentina," Commitment to Equity (CEQ) Working Paper Series 45, Tulane University, Department of Economics.
    4. Ali Enami & Nora Lustig & Alireza Taqdiri, 2019. "Fiscal policy, inequality, and poverty in Iran: assessing the impact and effectiveness of taxes and transfers," Middle East Development Journal, Taylor & Francis Journals, vol. 11(1), pages 49-74, January.
    5. Ali Enami & Nora Lustig & Rodrigo Aranda, 2016. "Analytic Foundations: Measuring the Redistributive Impact of Taxes and Transfers," Commitment to Equity (CEQ) Working Paper Series 25, Tulane University, Department of Economics.
    6. 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.
    7. Lindert Peter H., 1994. "The Rise of Social Spending, 1880-1930," Explorations in Economic History, Elsevier, vol. 31(1), pages 1-37, January.
    8. 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.
    9. 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, August.
    10. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    11. Atkinson, Anthony B., 2015. "Inequality: what can be done?," LSE Research Online Documents on Economics 101810, London School of Economics and Political Science, LSE Library.
    12. 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.
    13. John Scott, 2014. "Redistributive Impact and Efficiency of Mexico’s Fiscal System," Public Finance Review, , vol. 42(3), pages 368-390, May.
    14. Ali Enami, 2016. "Measuring the Redistributive Impact of Taxes and Transfers in the Presence of Reranking," Commitment to Equity (CEQ) Working Paper Series 59, Tulane University, Department of Economics.
    15. 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.
    16. 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.
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    Cited by:

    1. Richard M. Bird, 2018. "Are global taxes feasible?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1372-1400, October.
    2. Mashekwa Maboshe & Ingrid Woolard, 2018. "Revisiting the impact of direct taxes and transfers on poverty and inequality in South Africa," WIDER Working Paper Series 79, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Fiscal incidence; social spending; inequality; poverty; developing countries;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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