Fiscal policy, income redistribution and poverty reduction in low and middle income countries

Nora Lustig

No 428, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: Current policy discussion focuses primarily on the power of fiscal policy to reduce inequality. Yet, comparable fiscal incidence analysis for twenty-eight low and middle income countries reveals that, although fiscal systems are always equalizing, that is not always true for poverty. In Ethiopia, Tanzania, Ghana, Nicaragua, and Guatemala the extreme poverty headcount ratio is higher after taxes and transfers (excluding in-kind transfers) than before. In addition, to varying degrees, in all countries a portion of the poor are net payers into the fiscal system and are thus impoverished by the fiscal system. Consumption taxes are the main culprits of fiscally-induced impoverishment. Net direct taxes are always equalizing and indirect taxes net of subsidies are equalizing in nineteen countries of the twenty-eight. 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 but not always pro-poor. More unequal countries devote more resources to redistributive spending and appear to redistribute more. The latter, however, is not a robust result across specifications.

Keywords: fiscal incidence; social spending; inequality; poverty; developing countries. (search for similar items in EconPapers)
JEL-codes: D31 H22 H5 I3 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-02
New Economics Papers: this item is included in nep-lam, nep-ltv, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Related works:
Working Paper: Fiscal Policy, Income Redistribution and Poverty Reduction in Low and Middle Income Countries (2017)
Working Paper: Fiscal Policy, Income Redistribution and Poverty Reduction in Low and Middle Income Countries (2017)
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