Fiscal policy, inequality and the poor in the developing world

Type Working Paper - WIDER Working Paper
Title Fiscal policy, inequality and the poor in the developing world
Author(s)
Issue 164
Publication (Day/Month/Year) 2016
URL https://www.econstor.eu/bitstream/10419/161548/1/876444001.pdf
Abstract
Using comparable fiscal incidence analysis, this paper examines the impact of fiscal
policy on inequality and poverty in 25 countries for around 2010. 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 at the poor and direct taxes targeted at the rich.
While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy
increases poverty in 4 countries using a US$1.25/day PPP poverty line, in 8 countries using a
US$2.50/day line, and in 15 countries using a US$4/day line (over and above market income
poverty). Net direct taxes are always equalizing and net indirect taxes are equalizing in 17 of the
25 countries. While spending on pre-school and primary school is pro-poor (i.e. the per capita
transfer declines with income) in almost all countries, pro-poor secondary school spending is less
prevalent, and tertiary education spending tends to be progressive only in relative terms (i.e.
equalizing but not pro-poor). Health spending is always equalizing.

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