income distribution and tax and government social spending.pptVIP

Income distribution and Tax and Government Social Spending Policies in Developing Countries Sanjeev Gupta Fiscal Affairs Department International Monetary Fund January 28, 2003 Introduction Increasing economic interdependence and some evidence of widening income disparities have hightened interest in income distribution, particularly given the ongoing debate on globalization. In this context, what should be the role of fiscal policy as a redistributive instrument in the short and long run? What should be the role of redistributive tax and expenditure policies in developing countries? Is expenditure policy better for affecting income distribution in developing countries? This presentation: Provides an overview of changes in income distribution in developing countries over time on the basis of available data. Assesses the incidence of tax and government expenditures based on existing studies of individual countries. Outline Changes in Income Distribution Survey of chages in income distribution Distribution in industrial versus developing countries. The role of taxes and social spending Determinants of Income inequality Tax incidence Benefit incidence Conclusions I. Changes in Income Distribution In recent decades, many developing countries have experienced an increase in income inequality. Both in terms of before-tax (after transfer) and after-tax income (after transfer). There are many conceptual difficulties in such an analysis. Market income Disposable income Disposable income combined with government inkind transfers (eg. education and health). A. Survey of changes in income distribution Based on a sample of 19 countries for the 1970s and 1980s, the average Gini coefficient was stable, although this masks considerable changes for some countries. For example, inequality (as measured by the Gini coefficient) increased by one point for Venezuela, but fell by the same amount in Jamaica, Panama, and Mexico. Table 1. Nineteen Developing Countries: Income Distributi