Rethinking Fiscal Policies: Tackling Inequality and Poverty in the Middle East and Noth Africa Region

Alan Fuchs, Beenish Amjad and Mario Julian Loayza Grisi

No 11131, Policy Research Working Paper Series from The World Bank

Abstract: This paper examines the redistributive impact of fiscal policy—specifically taxes and transfers—on poverty and inequality in eight countries in the Middle East and North Africa: the Arab Republic of Egypt, Djibouti, the Islamic Republic of Iran, Iraq, Jordan, Morocco, Tunisia, and the West Bank and Gaza. Utilizing the Commitment to Equity framework, the analysis evaluates how fiscal interventions alter income distribution across these diverse national contexts. The results indicate that direct cash transfers and social assistance programs are generally effective in reducing poverty and shielding vulnerable populations, while in-kind benefits—particularly in education and healthcare—significantly contribute to mitigating income inequality. In contrast, generalized subsidies, especially in the energy sector, are fiscally burdensome and largely regressive, offering limited equity gains. Indirect taxes, although important for revenue generation, often exacerbate income disparities. The study underscores the need for comprehensive fiscal reforms, including the expansion of well-targeted transfers, adoption of progressive taxation, and reallocation of inefficient subsidies toward investments in human capital. Successful initiatives, such as Egypt’s Takaful and Karama and Jordan’s Takaful and bread subsidy compensation programs, illustrate scalable models of effective redistribution. Moreover, the Islamic Republic of Iran’s progressive tax policies highlight viable pathways to equitable revenue mobilization. Strengthening investment in education and health is essential for promoting long-term equity, enhancing upward mobility, and supporting inclusive and sustainable development across the region.

Date: 2025-05-22
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