Measuring the Distributional Impact of Taxation and Public Spending: The Practice of Fiscal Incidence Analysis (original) (raw)
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Budget Policy and Income Distribution
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one main goal of fiscal incidence analysis is to contribute to the design of good government policy. The right policy choices require information on which groups are likely to pay particular tax changes and which groups are more likely to benefit from expenditure programs. Policy makers have many questions about how to lighten the burden of taxation for lower income groups and about how to increase the effectiveness of public expenditures. Is it possible to broaden the bases of a value added tax or flatten the rate structure of income taxes without decreasing the overall progressivity of the tax system? What is the better way to target public spending to improve the condition of the poor? Incidence analysis provides some critical information to help policymakers achieve a more equitable distribution of income and to improve the effectiveness of public policy.
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As discussed in Krongkaew (1979: 3), in Thailand, there has been a need to address a problem of a reduction of income since 1970’s as mentioned as early as in the Third National Economic Development Plan written in 1972 and later to be more emphasized in The Fourth National Economic and Social Development Plan (1977-1981) to response with the then growing unrest, but there was no precise mechanism to track the implemented policies, “what is still much lacking is the knowledge of basic understanding of how the government policies affect the distribution of income of the people” (Krongkaew, 1979: 4). Therefore, he did the study to give this insight. This paper will follow Krongkaew’s study (1979) to demonstrate how we can utilize fiscal data to analyze impact on the income redistribution to the people.
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Taxes and transfers can have significant impacts on poverty and inequality. All standard measures are by definition anonymous in the sense that we do not know the identity of winners and losers. That a given combination of taxes and transfers makes some of the poor poorer, however, may be important information to incorporate into a fiscal incidence analysis. The directional mobility literature provides a useful framework to identify which individuals are adversely/favorably impacted by a particular policy. This paper introduces a "fiscal mobility matrix" to identify winners and losers. We show that taxes and transfers can lower inequality and poverty (including the severity of poverty) but still make a subgroup of the poor worse off. We use Brazilian data to illustrate how indirect taxes make around 11 percent of the non-poor poor, 15 percent of the moderate poor extremely poor, and 4 percent of the extremely poor "ultra-poor" despite any cash transfers they receive, even when standard poverty and inequality indicators decline and overall taxes are progressive.
Who Benefits from Combined Tax and Public Expenditure Policies in
2006
our deepest gratitude to the PMMA sub-network leader, resource persons and researchers for guidance and technical advice all throughout the conduct of this study. Most fiscal incidence studies neither analyze simultaneously the tax and benefit incidence (simply known as net fiscal incidence) nor actually relate poverty indices to fiscal impact. This paper jointly and separately examines the redistributive and poverty effects of the tax and transfer (education and health) systems in Cameroon. Broadly speaking, the tax system is generally progressive but less so when compared with the benefits of education and health. The net tax system is found to reduce inequality. Interestingly, while overall public spending on education and health are most progressive in rural areas, followed by semi-urban and urban areas, the opposite is true for tax incidence. Tax burden weighs more on the urban, followed by the rural and semi-urban, population. When we consider the two sets of policies together...
The Distributional Effects of Public Expenditure
Journal of Economic Surveys, 2002
It is commonly agreed that economic policies, including budgetary policies, can have potentially strong distributional effects. Traditional economic analysis held that economic policies affected the income distribution primarily through their impact on the rate of growth. More recently, it has come to be recognised that qualitative aspects of economic growth are probably more important than the rate of growth itself. While recent research has confirmed the potential role of expenditure policies as a redistributive tool, it has also shown that redistribution does not necessarily have to come at the expense of economic growth and efficiency. Although there are substantial analytical and technical problems to be faced in the design of equitable and cost-effective public expenditure programmes, unfavourable distributional outcomes of these programmes can usually be traced more to political and institutional pressures than to purely technical factors. JEL Classification number: H5
2017
In addition to its impact on economic growth and macroeconomic stability, fiscal policy affects the distribution of income across households and individuals through the use of taxes and expenditures. As a result, policy makers and development partners are likely to be interested in the answers to, among others, the following questions: what is the combined impact of taxes and transfers on poverty and inequality?; how progressive or regressive are different fiscal interventions, and what are their contributions to the overall impact?; what is the distributive efficiency of the existing fiscal package?; what is the distributional impact of a particular policy reform?; and what are the characteristics of net payers into and net beneficiaries from the fiscal package? The World Bank has partnered with the Commitment to Equity (CEQ) Institute at Tulane University to answer these questions using the Institute’s comprehensive fiscal incidence diagnostic tool. This tool - the CEQ assessment ...
2020
Taxes and transfers can have significant impacts on poverty and inequality. All standard measures are by definition anonymous in the sense that we do not know the identity of winners and losers. That a given combination of taxes and transfers makes some of the poor poorer, however, may be important information to incorporate into a fiscal incidence analysis. The directional mobility literature provides a useful framework to identify which individuals are adversely/favorably impacted by a particular policy. This paper introduces a "fiscal mobility matrix" to identify winners and losers. We show that taxes and transfers can lower inequality and poverty (including the severity of poverty) but still make a subgroup of the poor worse off. We use Brazilian data to illustrate how indirect taxes make around 11 percent of the non-poor poor, 15 percent of the moderate poor extremely poor, and 4 percent of the extremely poor "ultra-poor" despite any cash transfers they rece...