Disentangling the distributive impact of fiscal policy

Walter Cont; Alberto Porto

doi:10.4067/S0718-88702021000100109

Authors

Walter Cont CAF - Banco de Desarrollo de América Latina and Universidad Nacional de La Plata
Alberto Porto Universidad Nacional de La Plata and Academia Nacional de Ciencias Económicas

DOI:

https://doi.org/10.4067/S0718-88702021000100109

Keywords:

Welfare Economics, Redistributive effect, Tax incidence, Expenditure benefits, Measurement of Redistribution, Fiscal Policy

Abstract

This paper measures the distributive impact of fiscal policy on personal and regional income distribution and provides a decomposition of the redistributive effect of fiscal policy for individual income units and when they belong to groups. This methodology is useful to identify how much of redistributive effect and also progressive/regressive effects apply within groups, between groups and among overlapping units, and whether there are tensions between different effects. The execution of fiscal policy in Argentina for year 2010 is the case of study. Fiscal policy reduces income inequality under both personal and regional definitions. The vertical effect is strong and weakly compensated by reranking. The vertical effect is a net result of progressive expenditures and regressive taxes. The selection of groups displays particular results. The findings are relevant for the design of fiscal policy in federal countries that pursue both efficiency and equity goals. In the case of Argentina (and this certainly can be extended to other federal countries), this may include rebalancing expenditures among different kinds or levels of governments, as well as the re-designing the tax system and eliminating tradeoffs observed from the current context.

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Author Biographies

Walter Cont, CAF - Banco de Desarrollo de América Latina and Universidad Nacional de La Plata

CAF: Principal Executive / UNLP: Adjunct Professor

Alberto Porto, Universidad Nacional de La Plata and Academia Nacional de Ciencias Económicas

UNLP: Emeritus Professor

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