Designing Fiscal Redistribution: The Role of Universal and Targeted Transfers

David Coady and Nghia-Piotr Le

No 2020/105, IMF Working Papers from International Monetary Fund

Abstract: There is a growing debate on the relative merits of universal and targeted social assistance transfers in achieving income redistribution objectives. While the benefits of targeting are clear, i.e., a larger poverty impact for a given transfer budget or lower fiscal cost for a given poverty impact, in practice targeting also comes with various costs, including incentive, administrative, social and political costs. The appropriate balance between targeted and universal transfers will therefore depend on how countries decide to trade-off these costs and benefits as well as on the potential for redistribution through taxes. This paper discusses the trade-offs that arise in different country contexts and the potential for strengthening fiscal redistribution in advanced and developing countries, including through expanding transfer coverage and progressive tax financing.

Keywords: WP; income; cost; earned income; taxation framework; consumption taxation; transfer program; income tax schedule; efficiency cost; poverty impact; redistribution objective; means testing; income share; public spending; income redistribution objective; progressive tax; poverty line; Personal income; Income tax systems; Fiscal redistribution; Income inequality; Middle East; North Africa; Sub-Saharan Africa; Global; East Africa; transfers; taxes; targeted; universal; income transfer (search for similar items in EconPapers)
Pages: 27
Date: 2020-06-26
New Economics Papers: this item is included in nep-pbe
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