An Application of Distribution-Neutral Fiscal Policy

22 Pages Posted: 8 Feb 2018 Last revised: 18 Nov 2021

See all articles by Sanjeev Gupta

Sanjeev Gupta

International Monetary Fund (IMF) - Fiscal Affairs Department

Sugata Marjit

Centre for Studies in Social Sciences, Calcutta; Indian Institute of Foreign Trade; City University of Hong Kong (CityU) - Department of Economics & Finance

Sandip Sarkar

NIT Raipur

Date Written: January 2018

Abstract

Distribution neutral fiscal policy refers to a structure of taxes and transfers that keep the income distribution unchanged even after positive or negative shocks to an economy. This is referred to as a Strong Pareto Superior (SPS) allocation which improves the standard Pareto criterion by keeping the degree of inequality, but not the absolute level of income intact. We apply this methodology to India to compute SPS tax rates and determine their proximity to actual tax rates. Limited available data on income and expenditure shows that the official policies so far are close to desired benchmark level. Our methodological contribution will be enriched further with more detailed income tax and transfer data.

Keywords: Strong Pareto Superiority; Inequality; Compensation mechanism;, Strong Pareto Superiority, Inequality, Compensation mechanism, Neoclassical Models of Trade, Equity, Justice, and Other Normative Criteria and Measurement, General

JEL Classification: F11, J31, D63, H20, H23

Suggested Citation

Gupta, Sanjeev and Marjit, Sugata and Marjit, Sugata and Sarkar, Sandip, An Application of Distribution-Neutral Fiscal Policy (January 2018). IMF Working Paper No. 18/12, Available at SSRN: https://ssrn.com/abstract=3120339

Sanjeev Gupta (Contact Author)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Sugata Marjit

Centre for Studies in Social Sciences, Calcutta ( email )

R 1, B.P. Township
Kolkata, West Bengal, India
Kolkata, West Bengal 700094
India

Indian Institute of Foreign Trade ( email )

New Delhi
QUTUB INSTITUTIONAL AREA
NEW DELHI, 110016
India

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Sandip Sarkar

NIT Raipur ( email )

Raipur 492010
Chhattisgarh
India

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