Assessing the role of tax-benefit policies during the COVID-19 pandemic: evidence from the Andean region

H. Xavier Jara, David Rodríguez, Diego Collado, Javier Torres, Andrés Mideros, Lourdes Montesdeoca, Andrés Avellaneda, Rodrigo Chang and Omar Vanegas

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper aims to assess the role of tax-benefit policies in mitigating the effects of COVID-19 on the distribution of household disposable income in Colombia, Ecuador, and Peru. We exploit data from phone surveys collected during the pandemic combined with tax-benefit microsimulation techniques to nowcast the distribution of household disposable income. Our results show a sharp drop in household disposable income and a dramatic increase in poverty and inequality during the second quarter of 2020. By the end of 2020, the economy recovers but poverty and inequality remain above the pre-pandemic levels. COVID-related policies cushion the effect of the crisis at the bottom of the distribution, and their effect on poverty and inequality largely depends on the generosity of the benefits implemented. By contrast, automatic stabilizers mitigate the impact of the income shock at the top of the distribution due to the effect of social insurance contributions and personal income tax, whereas social assistance programs in place before the pandemic fail to act as automatic stabilizers due to their design as proxy means-tested benefits. We validate our nowcasting estimates with actual survey data from the end of 2020 and show that our results match closely poverty and inequality indicators in all three countries.

Keywords: Covid-19; nowcasting; tax-benefit policies; income distribution; Andean Region; coronavirus (search for similar items in EconPapers)
JEL-codes: D31 H22 J38 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2025-02-28
New Economics Papers: this item is included in nep-pbe
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Published in Review of Development Economics, 28, February, 2025, 29(1), pp. 226 - 246. ISSN: 1363-6669

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Related works:
Journal Article: Assessing the role of tax‐benefit policies during the COVID‐19 pandemic: Evidence from the Andean region (2025)
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