Fiscal Policy, Poverty and Inequality in Jordan : The Role of Taxes and Public Spending

Analysing who benefits from different taxes and spending is important to understand how fiscal policy is affecting poverty and inequality in Jordan. This study traces how the Jordanian fiscal system affects different households, while paying income tax and GST and benefiting from social assistance, and services, such as, cash transfers, electricity and water subsidies, education and health. The study finds that Jordan’s current fiscal system is modestly progressive, but more could be achieved. Inequality, as measured by the Gini Index, falls 5.8 points between household market incomes and post-fiscal incomes (after paying income and consumption taxes as well as receiving government transfers and subsidized services). When considering only monetary taxes and benefits (that is, excluding non-cash education and health services), inequality falls by only 2.6 points and poverty would be almost the same as the official poverty rate. Nonetheless, the recent expansion of social assistance programs is making Jordan’s fiscal policies more equalizing and there is scope for other reforms which would both close the fiscal gap while further reducing poverty and inequality.