The Impact of Fiscal Policy on Inequality and Poverty in Zambia
This study assesses the redistributive impact of fiscal policy––and its individual elements––in Zambia. Zambia's 2015 fiscal policy reduces inequality; the largest reduction is created by in-kind public service expenditures on education. Howev...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/293891511202548979/The-impact-of-fiscal-policy-on-inequality-and-poverty-in-Zambia http://hdl.handle.net/10986/28907 |
| Summary: | This study assesses the redistributive
impact of fiscal policy––and its individual elements––in
Zambia. Zambia's 2015 fiscal policy reduces inequality;
the largest reduction is created by in-kind public service
expenditures on education. However, fiscal policy also
increases poverty in three ways: (1) there is a relatively
low level of targeted, direct-transfer spending; (2) energy
subsidies, which do not reach many poor households, absorb a
large share of expenditures; and (3) tax instruments create
a burden greater than what is received as direct or indirect
benefits from subsidies or direct transfers. The number of
poor and vulnerable individuals who experience net cash
subtractions from their incomes is greater than the number
of poor and vulnerable individuals who experience net
additions. Eliminating subsidy spending while compensating
poor households would help fiscal policy achieve poverty
reduction and even greater inequality reduction. If
subsidies on fuel, electricity, and agricultural inputs were
eliminated without any compensatory mechanism, such as an
increase in the Social Cash Transfer program's coverage
and benefit levels, the impact of fiscal policy on poverty
would likely be muted. In 2015, Zambia exempted over 80
percent of the average household's consumption basket.
However, value-added tax exemptions imply only that some
portion of value-added is not taxed, and so do not entirely
eliminate a value-added tax burden. A more efficient way to
deliver net benefits to poor and vulnerable households is
through targeted cash transfers at a scale large enough to
compensate for the burden created across households by
value-added tax and other indirect taxes. |
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