IDEAS home Printed from https://ideas.repec.org/p/tul/ceqwps/120.html
   My bibliography  Save this paper

Fiscal Policies and their Impact on Income Distribution in India

Author

Listed:
  • Sridhar Kundu
  • Maynor Cabrera

Abstract

Fiscal policies play a key role in reshaping income distribution in India. There are differences in policies at the Union, State, and Municipal or city level, which have an individual and combined impact on the country’s standard of living. These policies include decisions on direct and indirect taxes, subsidies, pensions, and other direct transfers, as well as public spending on education and health. This Commitment to Equity (CEQ) study tries to analyse the individual and combined impact of these policies on poverty and income distribution in India. The report has used household consumption expenditure data from the National Sample Survey (NSS) of such expenditure, undertaken in 2011-12, as the base for its income-distribution analysis. It has also used other surveys, such as the NSS survey of household consumption expenditure on Education and Health, conducted in 2014, the Indian Human Development Survey, and NSS Employment and Unemployment survey in 2011-12, to impute values of cash and in-kind transfers, as well as direct taxes. After a detailed examination of all the policies, we found that government interventions play a significant role in reshaping income distribution by reducing poverty and inequality. India’s taxation policies are progressive, as the lion’s share of taxes is collected from the top 10 per cent of the population. Similarly, policies such as the Public Distribution System (PDS) subsidy, spending on education and health, and direct cash transfers through the rural employment scheme MGNREGS play an equalising role in overall income distribution.

Suggested Citation

  • Sridhar Kundu & Maynor Cabrera, 2022. "Fiscal Policies and their Impact on Income Distribution in India," Commitment to Equity (CEQ) Working Paper Series 120, Tulane University, Department of Economics.
  • Handle: RePEc:tul:ceqwps:120
    as

    Download full text from publisher

    File URL: http://repec.tulane.edu/RePEc/ceq/ceq120.pdf
    File Function: First version, 2022
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lucas Chancel & Thomas Piketty, 2019. "Indian Income Inequality, 1922‐2015: From British Raj to Billionaire Raj?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(S1), pages 33-62, November.
    2. Planning Commission, 2013. "Press Note on Poverty Estimates, 2011-12," Working Papers id:5421, eSocialSciences.
    3. Dang,Hai-Anh H. & Lanjouw,Peter F., 2020. "Welfare Dynamics in India over a Quarter Century : Poverty, Vulnerability, and Mobility during 1987-2012," Policy Research Working Paper Series 9231, The World Bank.
    4. Mr. David Coady & Delphine Prady, 2018. "Universal Basic Income in Developing Countries: Issues, Options, and Illustration for India," IMF Working Papers 2018/174, International Monetary Fund.
    5. Ellen Ehmke, 2016. "India's Mahatma Gandhi National Rural Employment Act: Assessing the quality of access and adequacy of benefits in MGNREGS public works," International Social Security Review, John Wiley & Sons, vol. 69(2), pages 3-27, April.
    6. Rodrigo Cubero & Ivanna Vladkova Hollar, 2010. "Equity and Fiscal Policy: The Income Distribution Effects of Taxation and Social Spending in Central America," IMF Working Papers 2010/112, International Monetary Fund.
    7. Unnikrishnan, Vidhya & Imai, Katsushi S., 2020. "Does the old-age pension scheme improve household welfare? Evidence from India," World Development, Elsevier, vol. 134(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Barrientos, Armando, 2011. "On the Distributional Implications of Social Protection Reforms in Latin America," WIDER Working Paper Series 069, World Institute for Development Economic Research (UNU-WIDER).
    2. Kang, Ji Young & Park, Sojung & Ahn, Seoyeon, 2022. "The effect of social pension on consumption among older adults in Korea," The Journal of the Economics of Ageing, Elsevier, vol. 22(C).
    3. Thomas Blanchet & Juliette Fournier & Thomas Piketty, 2022. "Generalized Pareto Curves: Theory and Applications," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(1), pages 263-288, March.
    4. Peter Lanjouw & Hai-Anh Dang, 2018. "Welfare dynamics in India over a quarter-century: Poverty, vulnerability, and mobility, 1987–2012," WIDER Working Paper Series 175, World Institute for Development Economic Research (UNU-WIDER).
    5. Anders Kjelsrud & Kristin Vikan Sjurgard, 2022. "Public Work and Private Violence," Journal of Development Studies, Taylor & Francis Journals, vol. 58(9), pages 1791-1806, September.
    6. Aswini Kumar Mishra & Vedant Bhardwaj, 2021. "Wealth distribution and accounting for changes in wealth inequality: empirical evidence from India, 1991–2012," Economic Change and Restructuring, Springer, vol. 54(2), pages 585-620, May.
    7. Kumar, Rishabh & Balasubramanian, Sriram & Loungani, Prakash, 2022. "Inequality and locational determinants of the distribution of living standards in India," Structural Change and Economic Dynamics, Elsevier, vol. 61(C), pages 59-69.
    8. Gaurav Datt & Martin Ravallion & Rinku Murgai, 2020. "Poverty and Growth in India over Six Decades," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(1), pages 4-27, January.
    9. Marko Ledic & Ivica Rubil & Ivica Urban, 2022. "Missing top incomes and tax-benefit microsimulation: evidence from correcting household survey data using tax records data," Working Papers 609, ECINEQ, Society for the Study of Economic Inequality.
    10. Dang,Hai-Anh H. & Lanjouw,Peter F., 2020. "Welfare Dynamics in India over a Quarter Century : Poverty, Vulnerability, and Mobility during 1987-2012," Policy Research Working Paper Series 9231, The World Bank.
    11. Abhijit Banerjee & Sharon Barnhardt & Esther Duflo, 2015. "Movies, Margins, and Marketing: Encouraging the Adoption of Iron-Fortified Salt," NBER Chapters, in: Insights in the Economics of Aging, pages 285-306, National Bureau of Economic Research, Inc.
    12. Mazumdar, Surajit, 2020. "The Coronavirus and India’s Economic Crisis: Continuity and Change," MPRA Paper 104969, University Library of Munich, Germany, revised 20 Dec 2020.
    13. Branko Milanovic, 2022. "After the Financial Crisis: The Evolution of the Global Income Distribution Between 2008 and 2013," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(1), pages 43-73, March.
    14. Atanu Ghoshray & Issam Malki & Javier Ordóñez, 2022. "On the long-run dynamics of income and wealth inequality," Empirical Economics, Springer, vol. 62(2), pages 375-408, February.
    15. Thomas Blanchet & Ignacio Flores & Marc Morgan, 2022. "The weight of the rich: improving surveys using tax data," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(1), pages 119-150, March.
    16. Osaid Alshamleh & Glenn Paul Jenkins & Tufan Ekici, 2024. "Excise tax incidence: the inequity of taxing obesity and beauty," Applied Economics, Taylor & Francis Journals, vol. 56(27), pages 3181-3193, June.
    17. Ishan Anand & Anjana Thampi, 2021. "The Crisis of Extreme Inequality in India," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 64(3), pages 663-683, September.
    18. Manuel Gonzalo, 2023. "The Indian Growth Acceleration: A Brazilian Demand-led Insight," Millennial Asia, , vol. 14(4), pages 509-534, December.
    19. Rao, R. Kavita, 2022. "Income Tax data and Facets of transparency," Working Papers 22/384, National Institute of Public Finance and Policy.
    20. Frank Cowell & Emmanuel Flachaire, 2021. "Inequality Measurement: Methods and Data," Post-Print hal-03589066, HAL.

    More about this item

    Keywords

    Fiscal Policies; poverty; inequality; direct and indirect taxes; PDS; Electricity Subsidy; MGNREGS; Pensions;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tul:ceqwps:120. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nora Lustig (email available below). General contact details of provider: https://edirc.repec.org/data/detulus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.