The Distributional Impact of Taxes and Social Spending in Romania

51 Pages Posted: 28 Aug 2018

See all articles by Gabriela Inchauste

Gabriela Inchauste

World Bank

Eva Militaru

National Research Institute for Labour and Social Protection

Date Written: August 23, 2018

Abstract

The combined effect of taxes and social spending in Romania helps to reduce inequality, although less so than in other European Union countries. However, the combination of direct and indirect taxes and transfers leads to an increase in poverty, as direct cash transfers to poor households are not large enough to compensate them for the burden of indirect taxes. This is especially important for rural households and families with children. Moreover, recent reductions in the rates for personal income and value-added taxes are expected to have led to an increase in inequality, as most of the tax relief accrued to the top of the income distribution. Although these changes likely helped to reduce poverty, they were an expensive way to achieve a small decline in the poverty rate. Higher and better targeted social assistance spending could have achieved better distributional results at a much lower fiscal cost. These results call for greater use of simulation tools that could inform policy makers and the public of the fiscal costs and redistributive impacts of proposed reforms.

Keywords: Inequality, Educational Sciences, Health Insurance, Health Economics & Finance, Health Care Services Industry, Employment and Unemployment

Suggested Citation

Inchauste Comboni, Maria Gabriela and Militaru, Eva, The Distributional Impact of Taxes and Social Spending in Romania (August 23, 2018). World Bank Policy Research Working Paper No. 8565, Available at SSRN: https://ssrn.com/abstract=3238408

Maria Gabriela Inchauste Comboni (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Eva Militaru

National Research Institute for Labour and Social Protection

Povernei 6-8
Bucharest, 010643
Romania

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