Fiscal Incidence, Mobility and the Poor: a New Approach Nora Lustig Tulane University CGD and IAD Symposium on Ultra-Poverty Institute for International Economic Policy, GWU March 22-23, 2012 Washington, DC 1

Acknowledgements Joint work with Satya Chacravarty and Nachiketa Chattopadhyay to develop theoretical properties Joint work with Claudiney Pereira and Sean Higgins on fiscal incidence in Brazil Part of the Commitment to Equity project/CIPR and Economics Department at Tulane and Inter-American Dialogue 2

Standard Measures of Poverty and the Poor Standard measures of inequality and poverty are by definition anonymous Could standard measures be leaving out important information on how the poor are affected by “events” (e.g., fiscal policy, rising food prices, trade liberalization, growth, etc.)? =>YES!!! 3

Fiscal Policy and the Poor Poverty declines Income distribution becomes less unequal The incidence of net taxes can be progressive However, some of the poor become poorer =>>> Standard Measures Don’t Capture the “Losing Poor” 4

New Concept: Fiscal Mobility Matrix Directional mobility literature (Fields, 2008) provides a useful framework One can identify which individuals are adversely/favorably impacted by a policy or an event 5

New Concept: Fiscal Mobility Matrix 6

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An Illustration: Brazil Extreme Poverty (including severity of poverty) declines; Ultra-poverty declines Inequality declines First three deciles are net receivers of transfers Reynolds-Smolensky indicates taxes overall are progressive 10

POVERTY DECLINES 11

PROGRESSIVE 12

An Illustration: Brazil HOWEVER: Around 18 (5) percent of the moderate (extreme) poor become extreme (ultra) poor 13

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An Illustration: Brazil This impoverishment of the poor occurs even after all cash transfers to the poor (Bolsa Familia, BPC, etc.) are considered What the government giveth with transfers taketh away with indirect taxes for a significant proportion of the poor. How much? 15

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