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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

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    Cited by:

    1. German Feierherd & Patricio Larroulet & Wei Long, & Nora Lustig, 2021. "The Pink Tide and Inequality in Latin America," Working Papers 2105, Tulane University, Department of Economics.
    2. Bienvenido Ortega & Jesús Sanjuán & Antonio Casquero, 2019. "Illicit Financial Flows: Another Road Block to Human Development in Low- and Middle-Income Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 142(3), pages 1231-1253, April.
    3. Burchi, Francesco & Malerba, Daniele & Rippin, Nicole & Montenegro, Claudio E., 2019. "Comparing global trends in multidimensional and income poverty and assessing horizontal inequalities," IDOS Discussion Papers 2/2019, German Institute of Development and Sustainability (IDOS).
    4. 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).
    5. Jose Cuesta & Mario Negre & Ana Revenga & Maika Schmidt, 2018. "Tackling Income Inequality: What Works and Why?," Journal of Income Distribution, Ad libros publications inc., vol. 26(1), pages 1-48, March.
    6. Nora Lustig & Jon Jellema & Valentina Martinez Pabon, 2023. "Are Budget Neutral Income Floors Fiscally Viable in Sub-Saharan Africa?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 32(Supplemen), pages 202-227.
    7. Ardanaz, Martín & Izquierdo, Alejandro, 2022. "Current expenditure upswings in good times and public investment downswings in bad times? New evidence from developing countries," Journal of Comparative Economics, Elsevier, vol. 50(1), pages 118-134.
    8. Peter H. Lindert, 2017. "The Rise and Future of Progressive Redistribution," Commitment to Equity (CEQ) Working Paper Series 73, Tulane University, Department of Economics.
    9. P. Facundo Cuevas & Leonardo Lucchetti & Metin Nebiler, 2020. "What are the Poverty and Inequality Impacts of Fiscal Policy in Turkey?," Commitment to Equity (CEQ) Working Paper Series 100, Tulane University, Department of Economics.
    10. Maya Goldman & Ingrid Woolard & Jon Jellema, 2021. "The Impact of Taxes and Transfers on Poverty and Income Distribution in South Africa 2014/15," Commitment to Equity (CEQ) Working Paper Series 106, Tulane University, Department of Economics.
    11. EDO Onome Christopher, 2021. "Direct Taxes and Income Redistribution in Nigeria," GATR Journals gjbssr596, Global Academy of Training and Research (GATR) Enterprise.
    12. Sally Torbert, 2022. "Impact Of Taxes And Transfers On Inequality In The Asia-Pacific Region," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 29(1), pages 43-65, May.
    13. Nora Lustig & Jon Jellema & Valentina Martinez Pabon, 2019. "Leaving No One Behind: Can Tax-Funded Transfer Programs Provide Income Floors in Sub-Saharan Africa?," Commitment to Equity (CEQ) Working Paper Series 85, Tulane University, Department of Economics.
    14. 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.
    15. Lukas Salecker & Anar K. Ahmadov & Leyla Karimli, 2020. "Contrasting Monetary and Multidimensional Poverty Measures in a Low-Income Sub-Saharan African Country," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 151(2), pages 547-574, September.
    16. Mashekwa Maboshe & Ingrid Woolard, 2018. "Revisiting the impact of direct taxes and transfers on poverty and inequality in South Africa," WIDER Working Paper Series wp-2018-79, World Institute for Development Economic Research (UNU-WIDER).
    17. Nora Lustig, 2018. "Measuring the Distribution of Household Income, Consumption and Wealth: State of Play and Measurement Challenges," Working Papers 1801, Tulane University, Department of Economics.
    18. Francesco Burchi & Markus Loewe & Daniele Malerba & Julia Leininger, 2022. "Disentangling the Relationship Between Social Protection and Social Cohesion: Introduction to the Special Issue," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(3), pages 1195-1215, June.
    19. Pierce O’Reilly, 2018. "Tax policies for inclusive growth in a changing world," OECD Taxation Working Papers 40, OECD Publishing.
    20. Popova, Daria, 2023. "Impact of equity in social protection spending on income poverty and inequality," Centre for Microsimulation and Policy Analysis Working Paper Series CEMPA10/23, Centre for Microsimulation and Policy Analysis at the Institute for Social and Economic Research.
    21. Cuevas,Pablo Facundo & Lucchetti,Leonardo Ramiro & Nebiler,Metin, 2020. "What Are the Poverty and Inequality Impacts of Fiscal Policy in Turkey ?," Policy Research Working Paper Series 9300, The World Bank.
    22. Daria Popova, 2023. "Impact of Equity in Social Protection Spending on Income Poverty and Inequality," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 169(1), pages 697-721, September.

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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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