The distributional impact of taxes and transfers: evidence from eight low- and middle-income countries

The distributional impact of taxes and transfers: evidence from eight low- and middle-income countries

This study presents a set of studies for low- and middle-income countries that use the CEQ approach to examine the distributional effects of individual taxes, transfers, and subsidies as well as their combined impact. Most of the case studies were produced with the objective of informing the World Bank in-country dialogue on fiscal policy or fiscal reform. Often the results from the CEQ assessments both influenced the decisions made by the governments that had requested the work and spurred interest in this kind of analysis among a broader set of client countries.

Until recently, evidence on the distributional impacts of taxes and spending in developing countries was relatively scarce, typically partial, and not comparable across countries. In this context, the CEQ approach aims to be as comprehensive as possible by evaluating the distributional impact of both taxes and expenditures. This is important because often those who actually bear the burden of taxes (economic incidence) differ from those who are legally liable to make payments to tax authorities (statutory incidence). Similarly, the benefits of different public spending programs are likely to vary across socioeconomic groups and types of households. Consequently, while conducting incidence analysis for each fiscal intervention helps to determine whether individual interventions are progressive or redistributive, assessing their combined effects can provide important additional insights on the distributional impacts and the redistributive efficiency of the overall fiscal package. In addition, the application of a common analytical framework to all case studies allows for cross-country comparability and benchmarking, both of which have proven to be powerful and influential tools in the context of in-country policy dialogue.

The studies presented in this volume are part of a larger research effort led by Tulane’s CEQ Institute in collaboration with the World Bank and other institutions aimed at increasing the information available on fiscal incidence in developing countries. To the extent that these assessments provide an evidence base for and bring an equity lens to the decision-making process surrounding tax and spending policy reforms, we hope they will be valuable to both policy makers and development practitioners.