fiscal policy and income inequality€¦ · from taxes average market income gini: 0.43 third in...
TRANSCRIPT
Fiscal Policy and Income InequalityFiscal Policy and Income Inequality
Sanjeev GuptaSanjeev GuptaDeputy DirectorDeputy DirectorDeputy DirectorDeputy Director
Fiscal Affairs Department, IMFFiscal Affairs Department, IMF
IMFIMF--HitotsubashiHitotsubashi University WorkshopUniversity WorkshopIMFIMF--HitotsubashiHitotsubashi University WorkshopUniversity WorkshopMarch 12, TokyoMarch 12, Tokyo
Structure of the presentationStructure of the presentation
Trends in inequality
Including inequality of income and wealth
Redistributive role of fiscal policy Redistributive role of fiscal policy
Design of efficient redistributive fiscal policy
Basic principles for designing fiscal redistribution
Design of spending measures (cash and in-kind transfers)
Design of tax measures (direct and indirect taxes)
2
I T d i I litI. Trends in Inequality
3
Inequality has been increasing in most economieseconomies
0 5
0.55
0 4
0.45
0.5
ent
0 3
0.35
0.4
Gin
i coe
ffic
ie
0 2
0.25
0.3
0.21980 1985 1990 1995 2000 2005 2010
Advanced (21) Asia and Pacific (14)Emerging Europe (21) Latin America and Caribbean (19)Middle East and North Africa (12) Sub-Saharan Africa (22)
4
Global Inequality and Income GrowthGlobal Inequality and Income Growth
5
Inequality Between Countries Down,Inequality Within Countries UpInequality Within Countries Up
Income Inequality in the 1980s and 2000s
0.67
0.68
0.69
World Gini Coefficient, 1970 - 2006
ZAF65
75
2000
s
Income Inequality in the 1980s and 2000s
0.63
0.64
0.65
0.66
HKG
ISR
SGP
GBR USA
ARG
BWA
BRA
BGR
CHL
CHN
COL
CRIDOMECU
SLVGAB
GTM
IDNIRN
JAM
JORKAZLVALTU
MKDMYSMUS
MEXMAR
PANPRY PER
PHL
RUS LKATHA
TTOTUN TUR
TKMURY
VENARM
BOL
CMR
CPV
CIV
GEO GHA
HTIHND
KEN
KGZ
LSO
MDG
MWIMLIMRTMDA
NPL
NGARWA SLE
TZA
UGAUZB
ZMB
45
55
alit
y (G
ini I
nd
ex)
0.59
0.6
0.61
0.62
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
AUS
AUTBEL
CANCYP
CZEDNK
EST
FIN
FRADEU
GRC
IRL
ITAJPN KOR
LUXNLD
NZL
NOR
PRT
SVKSVN
ESP
SWE
CHE
USADZA
AZE BHSBLR
BGR
HRV
EGY
HUN
INDPAK
POLROM
UKRBGD
ETH
MRTMDATJK
TZA
15
25
35
Ine
qu
a
Advanced Economies
Emerging Markets
Low Income Countries
19
7
19
7
19
7
19
7
19
7
19
8
19
8
19
8
19
8
19
8
19
9
19
9
19
9
19
9
19
9
20
0
20
0
20
0
20
0
2World inequality is defined by the Gini Index, assuming the world is one country. Source: Sala-i-Martin (2006).
15
15 25 35 45 55 65 75
Inequality (Gini Index) 1980sSource: Solt (2009)
6 6
In Asia, although poverty has decreased substantially, inequality has increasedsubstantially, inequality has increased
Po ert ($2/da ) and Gro th 1990 2010 Gini CoefficientPoverty ($2/day) and Growth 1990-2010 Gini Coefficient
TWN0
10
e
MYS0.45
0.52010 Average = 0.371990 Average = 0.35
BGD
KHMLKA
INDLAO
MYS
PHL
30
-20
-10
e in
Po
vert
y R
ate
KHM
LKA
LAO
PHL
THA
VNM
CHN
MNG#N/A
0 35
0.4
010
IDNNPL THA
VNM
-50
-40
-30
Ab
solu
te C
han
ge
BGDTWN
INDIDN
NPL
0.3
0.35
20
CHN
-70
-60
0 2 4 6 8 10
A
Average Annual Growth Rate (GDP per Capita)
0.2
0.25
0.2 0.25 0.3 0.35 0.4 0.45 0.51990Average Annual Growth Rate (GDP per Capita) 1990
Countries included: BGD=Bangladesh; BTN=Bhutan; KHM=Cambodia; CHN=China; FJI=Fiji; IND=India; IDN=Indonesia; KIR=Kiribati; KOR=Korea, Republic of; LAO=Laos; MYS=Malaysia; MDV=Maldives; MHL=Marshall Islands; MNG=Mongolia; MMR=Myanmar; NPL=Nepal; PNG=Papua New Guinea; PHL=Philippines; WSM=Samoa; SLB=Solomen Islands; LKA=Sri Lanka; THA=Thailand; TON=Tonga; VUT=Vanuatu; VNM=Vietnam; PAK=Pakistan.
7
More recently, the focus has been on the rising income share of top income earners
Gross Income Share of Top One-Percent in Selected Advancedand Developing Economies, 1925–2012
rising income share of top income earners
20
25
20
25
15
cen
t
15
5
10Per
c
5
10
0
5
0
5
8United Kingdom Australia CanadaSouth Africa India United StatesChina
France Germany Japan
Netherlands Sweden Mauritius
Public support for redistribution has been risingg
AUT
0.9Public Support for Redistribution
AUT
FIN
DEUSVN
ESPSWE
CHEAZEALB
BIHHRV
HUN
ROM
SRB
SVK
TUR
CHLIND
0.7
BEL
CAN
FRA
ISL
IRL
ITANLD
NORPOL PRT
ESP
GBR
USANGA
ZAF
ARM
BLR
MDA
RUS
EST
LTU MNE
SVK
ARGBRA
CHL
MEX
URY
AUSCHN
0.5
Lat
e 20
00s
DNK
NGA
GEO
UKRBGR
LVAMKD
MLT
PER
JPN KORTWN0.3
0.10.1 0.3 0.5 0.7 0.9
Late 1990s
Source: Integrated Values Survey 1981-2008
99
Wealth is even more unequally distributedWealth is even more unequally distributed
90
100Wealth Gini
Disposable income Gini
= 70.7
= 37.7
70
80
40
50
60
20
30
0
10
IDN
MYS
IND
PH
L
THA
KO
R
PN
G FJI
CH
N
SLB
LKA
TON
VU
T
KH
M
LAO
MD
V
MN
G
VN
M
NP
L
BG
D
PA
K
S Di bl i Gi i i t k f OECD L b I St d D t b S i E i D t b f L ti
10
Source: Disposable income Gini is taken from OECD; Luxembourg Income Study Database; Socio-Economic Database for Latin America and the Caribbean (SEDLAC); World Bank; Eurostat. Wealth Gini data comes from Credit Suisse Global Wealth Databook(2012).
Countries included: BGD=Bangladesh; BTN=Bhutan; KHM=Cambodia; CHN=China; FJI=Fiji; IND=India; IDN=Indonesia; KIR=Kiribati; KOR=Korea, Republic of; LAO=Laos; MYS=Malaysia; MDV=Maldives; MHL=Marshall Islands; MNG=Mongolia; MMR=Myanmar; NPL=Nepal; PNG=Papua New Guinea; PHL=Philippines; WSM=Samoa; SLB=Soloman Islands; LKA=Sri Lanka; THA=Thailand; TON=Tonga; VUT=Vanuatu; VNM=Vietnam; PAK=Pakistan.
Intergenerational income mobility is higher in countries with low income inequalityq y
ITA
CHE
GBR
USA
0.5
→)
FRAESP
CHE
0.4
ess
mob
ility
GER
JPN
NZL0.3el
asti
city
(le
AUSSWE
0.2nal e
arni
ngs
CAN
DNK
FINNOR
y = 0.0251x - 0.3709
Gen
erat
ion
11
0.120 25 30 35
Gini (around 1985; higher inequality→)
II. Redistributive Role of Fiscal Policy
12
Redistributive fiscal policy reduces inequality by one third in advanced economies mostly through spending
0.30
From taxes Average market income Gini: 0.43
third in advanced economies, mostly through spending
0.20
0.25From transfers Average disposable income Gini: 0.29
0.15
te G
ini
red
uct
ion
Total redistribution = 0.14
0.05
0.10
Ab
solu
t
From transfers = 0.09
0.00
DN
K
CZ
E
BE
L
SV
N
NO
R
GB
R
FIN
AU
T
SW
E
LUX
DE
U
FR
A
AU
S
IRL
NLD ISR
CA
N
US
A
ES
T
ITA
GR
C
ES
P
KO
R
13Countries included: AUS=Australia; AUT=Austria; BEL=Belgium; CAN=Canada; CZE=Czech Republic; DEU=Germany;DNK=Denmark; ESP=Spain; EST=Estonia; FIN=Finland; FRA=France; GBR=United Kingdom; GRC=Greece; ISR=Israel;IRL=Ireland; ITA=Italy; KOR=Korea; LUX=Luxembourg; NLD=Netherlands; SVN=Slovenia; SWE=Sweden; TWN=TaiwanProvince of China; USA=United States.
Fiscal redistribution also low reflecting low revenues and social spendinglow revenues and social spending
Composition of social spending, 2010 (Percent GDP)
Composition of revenues, 2010(Percent GDP)
25
30
(Percent GDP)
3
40
45
(Percent GDP)
15
20
20
25
30
35
5
10
5
10
15
20
0Advanced
{30}Emerging Europe
{19}
South America
{10}
Central America and Caribbean
{13}
MENA{14}
Asia and Pacific
{22}
Sub-Saharan Africa{29}
i l i l h d i
0
5
Advanced{31}
Emerging Europe
{21}
Latin America{27}
Sub-Saharan Africa{36}
Asia and Pacific{24}
MENA{21}
Indirect taxes Income taxes and contributionsCorporate Income Tax Revenue Other tax revenue Social protection Health EducationCorporate Income Tax Revenue Other tax revenueTotal revenue mean
14
Social protection spending also low in AsiaSocial protection spending also low in Asia
12
14
8
10
12
4
6
8
0
2
4
Social protection, public spending (percent GDP)
APD median
APD population weighted average
Countries included: BGD=Bangladesh; BTN=Bhutan; KHM=Cambodia; CHN=China; FJI=Fiji; IND=India; IDN=Indonesia; KIR=Kiribati; KOR=Korea, Republic of; LAO=Laos; MYS=Malaysia; MDV=Maldives; MHL=Marshall Islands; MNG=Mongolia; MMR=Myanmar; NPL=Nepal; PNG=Papua New Guinea; PHL=Philippines; WSM=Samoa; SLB=Soloman Islands; LKA=Sri Lanka; THA=Thailand; TON=Tonga; VUT=Vanuatu; VNM=Vietnam; PAK=Pakistan. 15
…. and low spending reflected in low coverage of social insurance…..coverage of social insurance…..
87% 86%90
100
Percent of Population above Legal Retirement Age in Receipt of a Pension
50
60
70
80
38% 37%
22% 21%
20
30
40
0
10
Advanced (n=27) Emerging Europe (n=18)
Middle East and North Africa (n=17)
Latin America (n=21)
Asia and Pacific (n=19)
Sub-Saharan Africa (n=27)
16
…..especially among lower-income groups…..especially among lower income groups
Social Protection Coverage and Benefit Share of Poorest 40%
50
60n
t)
Social Protection Coverage and Benefit Share of Poorest 40%
Median = 42.5
30
40
nci
den
ce (
Per
cen
0
10
20
Ben
efit
In
Median = 14.6
00 10 20 30 40 50 60 70 80 90 100
Coverage (Percent)
Asia and Pacific Latin America and Caribbean Middle East and North Africa Sub-Saharan Africa
17Social protection includes pensions and social assistance transfers
Health spending low and outcomes poor…….poor…….
60 Mortality rate, infant (per 1,000 live births)9
10 Health, public spending (percent GDP)
APD median
APD population weighted average
40
50
APD median
APD population weighted average
7
8
APD population weighted average
30
40
4
5
6
10
20
1
2
3
0
PN
G
KIR
IND
KH
M
NP
L
BG
D
SLB
IDN
PH
L
MN
G FJI
VN
M
VU
T
CH
N
THA
TON
MD
V
LKA
MYS
BR
N
SS A
fric
a
MEN
A
ntr
al A
mer
ica
ou
th A
mer
ica
ergi
ng
Euro
pe
Ad
van
ced
0
KIR
SLB
NP
LV
UT
TO
NM
DV
FJI
MN
GT
HA
CH
NV
NM
PN
GM
YS
BR
NK
HM
LKA
IDN
PH
LIN
DB
GD
Adv
ance
der
ging
Eur
ope
Latin
Am
eric
aS
S A
fric
aM
EN
A
Cen So
Eme
Em
e L
Countries included: BGD=Bangladesh; BTN=Bhutan; KHM=Cambodia; CHN=China; FJI=Fiji; IND=India; IDN=Indonesia; KIR=Kiribati; KOR=Korea, Republic of; LAO=Laos; MYS=Malaysia; MDV=Maldives; MHL=Marshall Islands; MNG=Mongolia; MMR=Myanmar; NPL=Nepal; PNG=Papua New Guinea; PHL=Philippines; WSM=Samoa; SLB=Soloman Islands; LKA=Sri Lanka; THA=Thailand; TON=Tonga; VUT=Vanuatu; VNM=Vietnam; PAK=Pakistan. 18
………with gaps in health coverage among lower-income groups
80
lower income groups
Shares of Health Spending Benefiting the Poorest 40%
60
70
30
40
50
0
10
20
0
CHL
2009
ARG
200
9
COL
2010
URY
200
9
BOL
2007
EGY
2005
BRA
2009
BOL
2009
BLR
2002
PER
2009
ZAF
2010
HN
D 2
004
ARM
201
1
MN
G 1
995
MEX
201
0
ETH
201
1
BGD
200
0
ZMB
2009
IDN
201
2
SLV
2011
TUR
2003
MO
Z 19
97
BGR
1995
THA
2008
GTM
201
0
ROM
199
7
GH
A 19
98
IND
199
6
ECU
199
8
19
Source: Lustig (2015); Davoodi, Tiongson, and Asawanuchit (2010); Lustig et. Al (2011); World Bank..
Countries included: ALB=Albania; ARG=Argentina; ARM=Armenia; AZE=Azerbaijan; BEN=Benin; BGD=Bangladesh; BIH=Bosnia and Herzegovina; BOL=Bolivia; BRA=Brazil; CHL=Chile; CIV=Cote d’Ivoire; COL=Colombia; CRI=Costa Rica; EGY=Egypt; ETH=Ethiopia; GTM=Guatemala; IDN=Indonesia; IND=India; KEN=Kenya; KHM=Cambodia; KSV=Kosovo; LBR=Liberia; LSO=Lesotho; MEX=Mexico; MOZ=Mozambique; NAM=Namibia; NPL=Nepal;PER=Peru; SLV=El Salvador; THA=Thailand; TUR=Turkey; UGA=Uganda; URY=Uruguay; UZB=Uzbekistan; ZAF=South Africa; ZMB=Zambia.
Low education spending also leads to low education outcomes…..education outcomes…..
12Education, public spending (percent GDP) 90
100 Secondary net enrollment rate
APD median
APD population weighted average
8
10
APD median
APD population weighted average
70
80
APD population weighted average
6
8
40
50
60
2
4
10
20
30
0
KIR
MYS
MD
V
THA
PN
G FJI
BR
N
SLB
VU
T
IND
TON
MN
G
VN
M
PH
L
IDN
NP
L
CH
N
LKA
BG
D
KH
M
Ad
van
ced
Lati
n A
mer
ica
MEN
A
ergi
ng
Euro
pe
SS A
fric
a
0
BR
N
LKA
FJI
MN
G
TH
A
IDN
MY
S
PH
L
NP
L
VU
T
BG
D
SLB
KH
M
Adv
ance
d
ergi
ng E
urop
e
ME
NA
outh
Am
eric
a
ntra
l Am
eric
a
SS
Afr
ica
Countries included: BGD=Bangladesh; BTN=Bhutan; KHM=Cambodia; CHN=China; FJI=Fiji; IND=India; IDN=Indonesia; KIR=Kiribati; KOR=Korea, Republic of; LAO=Laos; MYS=Malaysia; MDV=Maldives; MHL=Marshall Islands; MNG=Mongolia; MMR=Myanmar; NPL=Nepal; PNG=Papua New Guinea; PHL=Philippines; WSM=Samoa; SLB=Soloman Islands; LKA=Sri Lanka; THA=Thailand; TON=Tonga; VUT=Vanuatu; VNM=Vietnam; PAK=Pakistan.
L
Eme
Em
e S
Ce
20
……and gaps in coverage among lower-income groupsincome groups
Shares of Education Spending and Market Income Benefitting the Poorest 40%80
60
70
80
30
40
50
0
10
20
NAM
200
3
LSO
200
2
BRA
2009
ARG
200
9
PER
2009
SLV
2011
URY
200
9
CHL
2009
ARM
201
1
COL
2010
MEX
201
0
ZAF
2010
ALB
2002
BIH
200
1
GTM
201
0
BOL
2009
CRI 2
001
KEN
200
6
KHM
200
2
TUR
2001
IDN
201
2
AZE
2001
LBR
2008
KSV
2000
THA
2008
NPL
200
4
BOL
2007
UZB
200
0
CIV
2008
BEN
200
3
MO
Z 20
03
EGY
2005
ETH
201
1
UG
A 20
06
BGD
200
0
ZMB
2009
21
Source: Lustig (2015); Davoodi, Tiongson, and Asawanuchit (2010); Lustig et. Al (2011); World Bank..
Countries included: ALB=Albania; ARG=Argentina; ARM=Armenia; AZE=Azerbaijan; BEN=Benin; BGD=Bangladesh; BIH=Bosnia and Herzegovina; BOL=Bolivia; BRA=Brazil; CHL=Chile; CIV=Cote d’Ivoire; COL=Colombia; CRI=Costa Rica; EGY=Egypt; ETH=Ethiopia; GTM=Guatemala; IDN=Indonesia; IND=India; KEN=Kenya; KHM=Cambodia; KSV=Kosovo; LBR=Liberia; LSO=Lesotho; MEX=Mexico; MOZ=Mozambique; NAM=Namibia; NPL=Nepal;PER=Peru; SLV=El Salvador; THA=Thailand; TUR=Turkey; UGA=Uganda; URY=Uruguay; UZB=Uzbekistan; ZAF=South Africa; ZMB=Zambia.
…and there is no “Robin Hood” paradox p
In Kind-Social Spending and Market Income Inequality, 2010
BOL
8%
9%
Educa on/GDP vs Mkt Income Gini
BRA URY
6%
Health/GDP vs Mkt Income Gini
BRA
CHL SLV
ETH
IND
MEX
ZAF
URY 4%
5%
6%
7%
du
cao
n/G
DP
ARM
BOL
CHL
COL
SLV
ETH GTM
MEX PER
ZAF URY
2%
3%
4%
5%
He
alth
/GD
P
ARM COL
SLV GTM PER
URY
1%
2%
3%
0.3 0.4 0.4 0.5 0.5 0.6 0.6 0.7 0.7 0.8 0.8
E
Mkt Income Gini
ETH
IND 0%
1%
2%
0.3 0.4 0.4 0.5 0.5 0.6 0.6 0.7 0.7 0.8 0.8
H
Mkt Income GiniMkt Income Gini Mkt Income Gini
22
Source: Lustig (2015).
Countries included: ARM=Armenia; BOL=Bolivia; BRA=Brazil; CHL=Chile; COL=Colombia; ETH=Ethiopia; GTM=Guatemala; IND=India; MEX=Mexico; PER=Peru; SLV=El Salvador; URY=Uruguay; ZAF=South Africa.
Energy subsidies are high and sometimes exceed social spendingp g
(In percent of GDP, 2011)
10
12
Tax subsidies
Pretax subsidies
8
10Education spending
Health spending
4
6
0
2
0
Thai
lan
d
Mal
div
es
Ko
rea,
Rep
ub
lic o
f
Mal
aysi
a
Bh
uta
n
Fiji
Ind
on
esia
Ind
ia
Pak
ista
n
Sri L
anka
Mya
nm
ar
23
K
Most of the benefits from energy subsidies accrue to upper income householdspp
Distribution of Petroleum Product Subsidies in Asian Countries by Income Groups
(in percent of total product subsidies)
3 610
Gasoline
1921
KeroseneBottom quintile
10
1961
20
21
20
Top
Diesel
21
LPG
Top quintile
712
16
42
4 8
13
54
2423
21
54
III. Designing Efficient g gRedistributive Fiscal Policy
25
Designing efficient redistributive fiscal policyDesigning efficient redistributive fiscal policy
Redistributive fiscal policy should be consistent with macroeconomic objectivesmacroeconomic objectives
The impact of tax and spending policies should be evaluated jointlyevaluated jointly
Tax and expenditure policies need to be carefully designed to balance distributional and efficiency g yobjectives
Design should take into account administrative capacity
26
Reform options to achieve more efficient redistribution of social spending
Social transfersExpand conditional cash transfer (CCT) programs as administrative p (CC ) p gcapacity improves (e.g., programs exist in Bangladesh, Cambodia, India, Indonesia, Nepal and Philippines)
Expand noncontributory social pensions – as means-tested (e.g. Bangladesh, Korea, Malaysia, Nepal, Viet Nam), pensions-tested (e.g. Fiji, Thailand) or a universal cash transfer (e.g. Brunei, PNG, Timor)j ) ( g )
Remove general price subsidies and better target social transfers (e.g., Indonesia) by addressing:) y g
• Fragmentation and duplication—reduce number of programs (Vietnam)
• Low coverage and benefits—expand coverage with savings from targeting
Reliance on costl in kind benefits se cash benefit (China India)• Reliance on costly in-kind benefits—use cash benefit (China, India)
Expand public works programs (e.g., Bangladesh, India) 27
Reform options to achieve more efficient redistribution of social spending
HealthHealthExpand coverage of publicly financed basic health package and health insurance (China, Vietnam)
Reduce or eliminate user charges for low-income households (e.g., Indonesia)
Address supply-side barriers in less developed areas (e.g. Bangladesh, Laos, Vietnam)
Improve efficiency of health spending
28
Reform options to achieve more efficient redistribution of social spending
EducationEducationImprove access of low-income families to education by:
• increasing investment in lower levels of education (Philippines)
• focusing on access and progression to primary and lower-secondary g p g p y yeducation (e.g. Bhutan, Cambodia, Iran, Lao, Mongolia)
• expanding coverage for girls and students in rural areas (e.g.expanding coverage for girls and students in rural areas (e.g. Bangladesh, India)
29
Reform options to achieve more efficient redistribution of taxation
Personal income taxationImplement progressive Personal Income Tax (PIT) rate structures (e g KoreaImplement progressive Personal Income Tax (PIT) rate structures (e.g. Korea,Thailand, Viet Nam)
Expand coverage of the PIT pa d co e age o e
Reconsider income tax exemptions, based on a critical tax-expenditure review (e.g., India, Indonesia, China)
Impose a reasonable PIT exemption threshold
Capital income taxationDevelop more effective taxation of multinationals (e.g. China, India, Japan)
Exchange information internationally
30
Reform options to achieve more efficient redistribution of taxation
Property taxationUtilize better the opportunities for recurrent property taxes (e.g. Hong Kong, Singapore, Viet Nam)
• Improve administrative infrastructure
Cons mption ta ationConsumption taxationMinimize VAT exemptions and special VAT rates
Set a sufficiently high VAT registration threshold (e.g. Indonesia, Singapore, Viet Nam)
U ifi i i l f th th di t ib tiUse specific excises mainly for purposes other than redistribution
31
Thank you!
32