Fiscal Policy, Inequality and the Poor in the Developing World

43 Pages Posted: 7 Jan 2017

Date Written: November 8, 2016

Abstract

Using comparable fiscal incidence analysis, this paper examines the impact of fiscal policy on inequality and poverty in twenty-five 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 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 four countries using US$1.25/day PPP poverty line, in 8 countries using US$2.50/day line, and 15 countries using the US $4/day line (over and above market income poverty). 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 except for Jordan.

Keywords: fiscal incidence, social spending, inequality, poverty, developing countries

JEL Classification: D31, H5, H22, I13

Suggested Citation

Lustig, Nora Claudia, Fiscal Policy, Inequality and the Poor in the Developing World (November 8, 2016). Center for Global Development Working Paper No. 441, Available at SSRN: https://ssrn.com/abstract=2893758 or http://dx.doi.org/10.2139/ssrn.2893758

Nora Claudia Lustig (Contact Author)

Tulane University ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States

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