Fiscal Redistribution and Social Welfare
IMF Working Papers, March 8, 2019
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Bibliographic details
- Authors: David Coady, Devin D'Angelo, Brooks Evans
- Published: March 8, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484398081.001
Overview and Research Objective
- Authors: David Coady, Devin D'Angelo, Brooks Evans
- Publication date: March 8, 2019
- Paper series: IMF Working Papers, Working Paper No. 2019/051
- Pages: 30
- DOI: https://doi.org/10.5089/9781484398081.001
- Volume: 2019
- Issue: 051
- Stock No: WPIEA2019051
- ISBN: 9781484398081
- ISSN: 1018-5941
- Core objective: Embed fiscal redistribution analysis within the standard social welfare framework to provide a transparent and practical evaluation of the extent and determinants of fiscal redistribution in advanced economies.
Conceptual Framework and Decomposition
- Fiscal redistribution decomposed into:
- Fiscal effort: differences in the magnitude of transfers.
- Fiscal progressivity: differences in the progressivity of transfers.
- Fiscal progressivity further decomposed into:
- Targeting performance: differences in the distribution of transfers across income groups.
- Targeting returns: differences in social welfare returns to targeting driven by varying initial levels of income inequality.
- Purpose of decomposition:
- Clarify distinction between progressivity and targeting.
- Clarify relationship between progressivity, targeting performance, and targeting returns.
- Provide a framework suitable for transparent policy evaluation.
Empirical Illustration
- Data application:
- Sample: 28 EU countries.
- Use of EUROMOD data referenced in keywords (EUROMOD data).
- Analytical aim:
- Determine factors explaining differences in fiscal redistribution across these countries.
- Discuss patterns in fiscal redistribution highlighted in the literature.
Key Findings and Interpretive Points
- Fiscal policy is identified as a key tool for achieving distributional objectives in advanced economies.
- The decomposition highlights that observed differences in redistribution can arise from:
- The scale of transfers (fiscal effort).
- How transfers are distributed across income groups (targeting performance).
- How much social-welfare gain accrues from targeting given initial inequality (targeting returns).
- The framework provides a practical metric for evaluating both magnitude and distributional design of fiscal transfers.
Policy-Relevant Implications
- Distinct policy levers:
- Adjust fiscal effort (change magnitude of transfers) to affect aggregate redistribution.
- Improve targeting performance (reallocate transfers across income groups) to increase progressivity.
- Consider initial income inequality when assessing welfare gains from improved targeting (targeting returns).
- Evaluation approach:
- Use the decomposed framework to identify whether policy reforms should focus on expanding transfer size, redesigning targeting, or addressing underlying inequality to maximize welfare returns.
Keywords and Subject Tags
- Subject: Fiscal redistribution, Income distribution, Income inequality, National accounts, Personal income, Progressive taxation, Tax policy
- Keywords: benefit share, cost-benefit ratio, EUROMOD data, fiscal policy, Fiscal redistribution, Income distribution, Income inequality, percentage decrease, Personal income, Progressive taxation, progressivity, share of transfer, targeting, taxes, transfer program, transfers, welfare impact, welfare weight, WP
Source: IMF Working Papers — "Fiscal Redistribution and Social Welfare" by David Coady, Devin D'Angelo, and Brooks Evans (Working Paper No. 2019/051, March 8, 2019).
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- Working Paper