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Front Cover -- Contents -- Foreword -- Acknowledgments -- About the Authors -- Abbreviations -- Chapter 1 Overview: Fiscal Policy and Redistribution -- Introduction -- Budget Size, Social Spending, and Taxation -- Fiscal Policy and Inequality -- Fiscal Policy and the Poor -- The Contribution of Taxes and Transfers -- Education and Health Spending -- Conclusions -- Annex 1A. Fiscal Incidence Analysis: Methodological Highlights from the CEQ Handbook -- Defining Pro-Poorness of Government Spending -- Annex 1B. Data and Assumptions -- Annex 1C. Redistributive Effort: Marginal Contribution of Taxes and Transfers toward Reducing Inequality -- Notes -- References -- Chapter 2 Fiscal Incidence in Armenia -- Introduction -- Methods and Approach -- Description of Taxes and Expenditures in Armenia -- Results -- Income Mobility -- Comparisons with Other Incidence Studies in Armenia -- Conclusions -- Annex 2A. Sensitivity Analyses -- Notes -- References -- Chapter 3 Fiscal Incidence Analysis for Ethiopia -- Introduction -- Structure of Taxes and Spending -- Data Sources and Assumptions -- Overall Impact of Taxes and Spending on Poverty and Inequality -- Progressivity, Marginal Contributions, and Pro-Poorness of Taxes and Transfers -- Conclusion -- Annex 3A. Methodological Assumptions -- Notes -- References -- Chapter 4 The Distributional Impact of Fiscal Policy in Georgia -- Introduction -- Fiscal Instruments to Tackle Poverty and Inequality -- Methodology, Data, and Assumptions -- Main Results -- Concluding Remarks -- Notes -- References -- Chapter 5 The Distributional Impact of Fiscal Policy in Indonesia -- Introduction -- The Government's Fiscal Toolkit -- Data, Assumptions, and Income Concepts -- Results Overview -- Conclusions -- Notes -- References -- Chapter 6 The Distributional Impact of Fiscal Policy in Jordan -- Introduction

The combined effect of taxes and social spending in Romania helps to reduce inequality, although less so than in other European Union countries. However, the combination of direct and indirect taxes and transfers leads to an increase in poverty, as direct cash transfers to poor households are not large enough to compensate them for the burden of indirect taxes. This is especially important for rural households and families with children. Moreover, recent reductions in the rates for personal income and value-added taxes are expected to have led to an increase in inequality, as most of the tax relief accrued to the top of the income distribution. Although these changes likely helped to reduce poverty, they were an expensive way to achieve a small decline in the poverty rate. Higher and better targeted social assistance spending could have achieved better distributional results at a much lower fiscal cost. These results call for greater use of simulation tools that could inform policy makers and the public of the fiscal costs and redistributive impacts of proposed reforms.

This paper assesses the impact of fiscal policy on the incidence, depth, and severity of poverty, and examines whether there is room for an increased role for fiscal policy in improving the wellbeing of the poor. The results show that the combined effect of taxes and social spending helped substantially to reduce poverty and inequality in Poland in 2014, in line with other European Union countries, with most of the reduction largely being achieved by pensions. However, in cash terms, households beginning in the second decile were net payers to the treasury in 2014, as the share of taxes paid exceeded the cash benefits received for all but the poorest 10 percent of the population. Although the Polish fiscal system in 2014 had the capacity to redistribute, it had a relatively weak capacity to reduce poverty given the resources at its disposal, and this was especially true for families with children. Microsimulations of the introduction of the Family 500+ program in 2016 show the redistributive and poverty reduction impacts of the new program, even after taking into account the potential increase in indirect taxes. Finally, alternative reforms of the tax-free allowance are considered, and estimates of their likely impact on poverty, inequality, and the potential fiscal cost are presented. The simulations show that there are potential efficiency gains from further targeting each of these new initiatives.

Between 2002 and 2012-13, most of the reduction in poverty was due to increased earnings, as opposed to higher employment or higher transfers. Although it is hard to be certain, increases in earnings are associated with: (i) a slow structural transformation away from agriculture and into industry and services that led to productivity increases; (ii) agglomeration around key urban areas that supported this structural transformation; (iii) domestic-driven growth, including public-sector investment that led to increases in labor demand, particularly in industry and services; and (iv) a commodity boom that led to higher labor earnings for agricultural workers in the context of lower agricultural employment. Sri Lanka's has had impressive development gains but there are strong indications that drivers of past progress are not sustainable. Solid economic growth, strong poverty reduction, overcoming internal conflict, effecting a remarkable democratic transition in recent months, and overall strong human development outcomes are a track record that would make any country proud. However, the country's inward looking growth model based on non-tradable sectors and domestic demand amplified by public investment cannot be expected to lead to sustained inclusive growth going forward. A systematic diagnostic points to fiscal, competitiveness, and inclusion challenges as well as cross-cutting governance and sustainability challenges as priority areas of focus for sustaining progress in ending poverty and promoting shared prosperity.