Fiscal Redistribution and Social Welfare

31 Pages Posted: 8 Apr 2019

See all articles by David P. Coady

David P. Coady

International Monetary Fund (IMF)

Devin D'Angelo

International Monetary Fund (IMF)

Brooks Evans

International Monetary Fund (IMF)

Date Written: March 2019

Abstract

Fiscal policy is a key tool for achieving distributional objectives in advanced economies. Thispaper embeds the discussion of fiscal redistribution within the standard social welfareframework, which lends itself to a transparent and practical evaluation of the extent anddeterminants of fiscal redistribution. Differences in fiscal redistribution are decomposed intodifferences in the magnitude of transfers (fiscal effort) and in the progressivity of transfers(fiscal progressivity). Fiscal progressivity is further decomposed into differences in thedistribution of transfers across income groups (targeting performance) and in the socialwelfare returns to targeting due to varying initial levels of income inequality (targetingreturns). This decomposition provides a clear distinction between the concepts ofprogressivity and targeting, and clarifies the relationship between them. For illustrativepurposes, the framework is applied to data for 28 EU countries to determine the factorsexplaining differences in their fiscal redistribution and to discuss patterns in fiscalredistribution highlighted in the literature.

Keywords: Social security, Income distribution, Personal income taxes, Social welfare programs, Fiscal policy, Fiscal redistribution, progressivity, targeting, transfers, taxes, target return, redistribution, redistributive, lower-income group

JEL Classification: H22, H23, H71, E01, I3, Z13, K34

Suggested Citation

Coady, David P. and D'Angelo, Devin and Evans, Brooks, Fiscal Redistribution and Social Welfare (March 2019). IMF Working Paper No. 19/51, Available at SSRN: https://ssrn.com/abstract=3367436

David P. Coady (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Devin D'Angelo

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Brooks Evans

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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