The Distributional Impact of Fiscal Policy in Georgia

Cesar Cancho and Elena Bondarenko
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Cesar Cancho: Poverty & Equity Global Practice at the World Bank
Elena Bondarenko: Macroeconomics & Fiscal Management Global Practice at the World Bank

No 42, Commitment to Equity (CEQ) Working Paper Series from Tulane University, Department of Economics

Abstract: This paper uses the 2013 Integrated Household Survey, collected by the Central Statistical Agency of Georgia (GeoStat), and data concerning government revenues and expenditures collected by the Ministry of Finance (MoF) along with other administrative agencies, and applies the CEQ methodology to analyze the progressivity of Georgia’s tax and transfer systems. The effects of a variety of policies are individually described, including personal income tax (PIT), value added tax (VAT) and excise tax. In addition, this paper assesses direct and in-kind transfers made by the Georgian government. The distributional effect of indirect subsidies, which are confined to the capital city, Tbilisi, are also considered, as well as the Agricultural Card program. The results show a stark difference between direct and indirect taxation. Direct taxes are progressive, and income tax is largely borne by high-income deciles. Meanwhile, the burden of indirect taxation is more evenly distributed, with the poor losing a higher percentage of income. Thus, the tax system is regressive. Overall, fiscal policy is progressive and equalizing, even before in-kind transfers for early education, and the Medical Insurance for the Poor (MIP), and Universal Health Care (UHC) programs are taken into account. The Targeted Social Assistance Program (TSA) and old-age pensions play a significantly pro-poor role. Fiscal incidence reduces poverty (under $2.50 USD’s per day) over 9 percentage points, the largest drop in poverty amongst the countries where CEQ analysis was performed. This paper concludes that excise taxes should be reassigned or eliminated to reduce regressivity, while PIT and the property tax could be broadened, which would expand the tax base.

Keywords: fiscal incidence; taxation; social spending; inequality; poverty; Georgia (search for similar items in EconPapers)
JEL-codes: D31 H22 I38 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2017-05
New Economics Papers: this item is included in nep-cis, nep-cwa, nep-pbe and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in Commitment to Equity, May 2017, pages 1-41

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http://repec.tulane.edu/RePEc/ceq/ceq42.pdf First version, 2017 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tul:ceqwps:42

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