Equity and Fiscal Policy

How does fiscal policy fare in improving the underlying income distribution in Central America? We integrate the data from a number of existing tax and public expenditure studies for the countries in the region and find that the distributional effect of taxation is regressive but small. In contrast, the redistributive impact of social spending is large and progressive, leading to a progressive net redistributive effect in all countries of the region. We also show that raising tax revenues and devoting the proceeds to social spending would unambiguously improve the income of the poorest households.Income distribution;Government expenditures;Tax revenues;Tax systems;Taxation;social spending, fiscal policy, gini coefficient, public spending, tax system, tax revenue, tax policy, redistributive impact, distribution of income, tax burden, social security, tax income, gini index, tax payments, tax reform, pro-poor, tax structures, tax rates, tax collection, tax ratio, government revenue, tax collections, distribution of resources, public transfers, tax reforms, expenditure policy, public spending on primary education, government spending, inequality changes, public expenditures, vulnerable groups, consumption distribution, tax base, inequality will, social services, fiscal incidence, public expenditure, measure of inequality, inequality falls, tax structure, social safety net, public finance, tax design, public finances, reducing inequality, tax administration, fiscal redistribution, unequal distribution, fiscal reform, tax credits