Fiscal Redistribution In Middle Income Countries: Brazil, Chile, Colombia, Indonesia, Mexico, Peru and South Africa

Type Working Paper
Title Fiscal Redistribution In Middle Income Countries: Brazil, Chile, Colombia, Indonesia, Mexico, Peru and South Africa
Author(s)
Publication (Day/Month/Year) 2015
Abstract
This paper examines the redistributive impact of fiscal policy for Brazil, Chile, Colombia, Indonesia,
Mexico, Peru and South Africa using comparable fiscal incidence analysis with data from around 2010.
The largest redistributive effect is in South Africa and the smallest in Indonesia. Success in fiscal
redistribution is driven primarily by redistributive effort (share of social spending to GDP in each country)
and the extent to which transfers/subsidies are targeted to the poor and direct taxes targeted to the rich.
While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases
poverty in Brazil and Colombia (over and above market income poverty) due to high consumption taxes on
basic goods. The marginal contribution of direct taxes, direct transfers and in-kind transfers is always
equalizing. The marginal effect of net indirect taxes is unequalizing in Brazil, Colombia, Indonesia and
South Africa. Total spending on education is pro-poor except for Indonesia, where it is neutral in absolute
terms. Health spending is pro-poor in Brazil, Chile, Colombia and South Africa, roughly neutral in
absolute terms in Mexico, and not pro-poor in Indonesia and Peru.

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