Measuring the Effectiveness of Taxes and Transfers in Fighting Inequality and Poverty
This chapter introduces new indicators that measure the effectiveness of the elements of a fiscal system in reducing inequality and poverty. The new indices are generally divided into two families of Impact Effectiveness (IE) and Spending Effectiveness (SE) indicators and are applicable in any context (i.e. inequality and poverty). Moreover, a variation of the former, known as the Fiscal Impoverishment and Gains Effectiveness indicator (FI/FGP), is separately introduced that is only applicable in the context of poverty. IE and SE indicators are similar in the sense that they both compare the performance of a tax or transfer in reducing inequality or poverty with respect to its theoretically maximum potential. For IE indicators, we keep the amount of money raised (or spent) constant and compare the actual and potential performance of a tax (or transfer) to each other. For SE indicators, we keep the impact of a tax (or transfer) on inequality or poverty constant and compare the actual size of a tax (or transfer) with the theoretically minimum amount of tax (or transfer) that would create the same impact.
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- Fellman, Johan & Jantti, Markus & Lambert, Peter J, 1999. " Optimal Tax-Transfer Systems and Redistributive Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 115-126, March.
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