Fiscal Policies and their Impact on Income Distribution in India

Sridhar Kundu and Maynor Cabrera

No 120, Commitment to Equity (CEQ) Working Paper Series from Tulane University, Department of Economics

Abstract: Fiscal policies play a key role in reshaping income distribution in India. There are differences in policies at the Union, State, and Municipal or city level, which have an individual and combined impact on the country’s standard of living. These policies include decisions on direct and indirect taxes, subsidies, pensions, and other direct transfers, as well as public spending on education and health. This Commitment to Equity (CEQ) study tries to analyse the individual and combined impact of these policies on poverty and income distribution in India. The report has used household consumption expenditure data from the National Sample Survey (NSS) of such expenditure, undertaken in 2011-12, as the base for its income-distribution analysis. It has also used other surveys, such as the NSS survey of household consumption expenditure on Education and Health, conducted in 2014, the Indian Human Development Survey, and NSS Employment and Unemployment survey in 2011-12, to impute values of cash and in-kind transfers, as well as direct taxes. After a detailed examination of all the policies, we found that government interventions play a significant role in reshaping income distribution by reducing poverty and inequality. India’s taxation policies are progressive, as the lion’s share of taxes is collected from the top 10 per cent of the population. Similarly, policies such as the Public Distribution System (PDS) subsidy, spending on education and health, and direct cash transfers through the rural employment scheme MGNREGS play an equalising role in overall income distribution.

Keywords: Fiscal Policies; poverty; inequality; direct and indirect taxes; PDS; Electricity Subsidy; MGNREGS; Pensions (search for similar items in EconPapers)
JEL-codes: D31 E62 H22 I14 I24 I38 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2022-04
New Economics Papers: this item is included in nep-mac and nep-pub
References: View references in EconPapers View complete reference list from CitEc
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Published in Commitment to Equity, April 2022, pages 1-36

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http://repec.tulane.edu/RePEc/ceq/ceq120.pdf First version, 2022 (application/pdf)

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