Abstract
To analyze anti-poverty policies in tandem with the taxes used to pay for them, comparisons of poverty before and after taxes and transfers are often used. We show that these comparisons, as well as measures of horizontal equity and progressivity, can fail to capture an important aspect: that a substantial proportion of the poor are made poorer (or non-poor made poor) by the tax and transfer system. We illustrate with data from seventeen developing countries: in fifteen, the fiscal system is poverty-reducing and progressive, but in ten of these at least one-quarter of the poor pay more in taxes than they receive in transfers. We call this fiscal impoverishment, and axiomatically derive a measure of its extent. An analogous measure of fiscal gains of the poor is also derived, and we show that changes in the poverty gap can be decomposed into our axiomatic measures of fiscal impoverishment and gains.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 63-75 |
| Number of pages | 13 |
| Journal | Journal of Development Economics |
| Volume | 122 |
| DOIs | |
| State | Published - Sep 1 2016 |
Funding
For detailed comments on earlier versions of the paper, we are grateful to Francesco Andreoli, Alan Barreca, Jean-Yves Duclos, John Edwards, Charles Kenny, Peter Lambert, Darryl McLeod, Mauricio Reis, Kathleen Short, Rafael Salas, Jay Shimshack, Harry Tsang, Paolo Verme, two anonymous referees, and Maitreesh Ghatak, the Editor. We are also grateful to Karim Araar, Abhijit Banerjee, François Bourguignon, Satya Chakravarty, Nachiketa Chattopadhyay, Chico Ferreira, Gary Fields, James Foster, Ravi Kanbur, Doug Nelson, Jukka Pirttilä, John Roemer, Jon Rothbaum, and Shlomo Yitzhaki for their useful feedback. For applying our measures to microdata in a number of developing countries and sharing the results with us for this paper, we are grateful to the many country study authors we cite in the paper. We thank Claudiney Pereira for collaboration on the analysis of Brazilian data and Ruoxi Li, Sandra Martínez-Aguilar, Adam Ratzlaff, Mel Reitcheck, and William Smith for research assistance. Work on this project was partially completed when S. Higgins was visiting Haas School of Business at UC Berkeley and the Center for Economic Studies at El Colegio de México with funding from the Fulbright–García Robles Public Policy Initiative. This paper is part of a larger project that received funding from the Bill & Melinda Gates Foundation (grant numbers OPP1097490 and OPP1335502 ). These institutions and funders are gratefully acknowledged.
Keywords
- Fiscal impoverishment
- Horizontal equity
- Poverty
- Progressivity
ASJC Scopus subject areas
- Development
- Economics and Econometrics