Equity and Fiscal Policy: The Income Distribution Effects of Taxation and Social Spending in Central America

By Rodrigo Cubero, Ivanna Vladkova Hollar

May 1, 2010

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Rodrigo Cubero, and Ivanna Vladkova Hollar. Equity and Fiscal Policy: The Income Distribution Effects of Taxation and Social Spending in Central America, (USA: International Monetary Fund, 2010) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

How does fiscal policy fare in improving the underlying income distribution in Central America? We integrate the data from a number of existing tax and public expenditure studies for the countries in the region and find that the distributional effect of taxation is regressive but small. In contrast, the redistributive impact of social spending is large and progressive, leading to a progressive net redistributive effect in all countries of the region. We also show that raising tax revenues and devoting the proceeds to social spending would unambiguously improve the income of the poorest households.

Subject: Expenditure, Fiscal policy, Income distribution, Income tax systems, Personal income

Keywords: Gini coefficient, Income, Social spending, Spending, Tax revenue, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/112
Stock No:

WPIEA2010112
ISBN:

9781455200719
ISSN:

1018-5941

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