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Fiscal Policy, Inequality and Poverty in Iran: Assessing the Impact and Effectiveness of Taxes and Transfer

Ali Enami (), Nora Lustig () and Alireza Taqdiri ()
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Alireza Taqdiri: University of Akron, OH, USA

No 48, Commitment to Equity (CEQ) Working Paper Series from Tulane University, Department of Economics

Abstract: Using the Iranian Household Expenditure and Income Survey (HEIS) for 2011/12, we apply the marginal contribution approach to determine the impact and effectiveness of each fiscal intervention, and the fiscal system as a whole, on inequality and poverty. Net direct and indirect taxes combined reduce the Gini coefficient by 0.0644 points and the headcount ratio by 61 percent. When the monetized value of in-kind benefits in education and health are included, the reduction in inequality is 0.0919 Gini points. Based on the magnitudes of the marginal contributions, we find that the main driver of these reduction is the Targeted Subsidy Program, a universal cash transfer program implemented in 2010 to compensate individuals for the elimination of energy subsidies. The main reduction in poverty occurs in rural areas, where the headcount ratio declines from 44 to 23 percent. In urban areas, fiscally-induced poverty reduction is more modest: the headcount ratio declines from 13 to 5 percent. Taxes and transfers are similar in their effectiveness in achieving their inequality-reducing potential. By achieving 40 percent of its inequality-reducing potential, the income tax is the most effective intervention on the revenue side. On the spending side, Social Assistance transfers are the most effective and they achieve 45 percent of their potential. Taxes are especially effective in raising revenue without causing poverty to rise, indicating that the poor are largely spared from being taxed. In contrast, since the bulk of transfers are not targeted to the poor, they are not very effective: the most effective ones achieve 20 percent of their poverty reduction potential. The effectiveness of the Targeted Subsidy Program could be improved by eliminating the transfer to top deciles and re-allocating the freed funds to the poor.

Keywords: Inequality; poverty; marginal contribution; CEQ framework; policy simulation (search for similar items in EconPapers)
JEL-codes: D31 H22 I38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ara, nep-cmp, nep-cwa and nep-pbe
Date: 2016-07, Revised 2017-06
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Published in commitment to Equity Institute, July 2016, pages 1-42

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http://repec.tulane.edu/RePEc/ceq/ceq48.pdf First version, 2016 (application/pdf)

Related works:
Working Paper: Fiscal Policy, Inequality and Poverty in Iran: Assessing the Impact and Effectiveness of Taxes and Transfers (2017) Downloads
Working Paper: Fiscal policy, inequality and poverty in Iran: Assessing the impact and effectiveness of taxes and transfers (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:tul:ceqwps:48

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