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The Distributional Impact of Fiscal Policy in Georgia

Author

Listed:
  • Cesar Cancho

    (Poverty & Equity Global Practice at the World Bank)

  • Elena Bondarenko

    (Macroeconomics & Fiscal Management Global Practice at the World Bank)

Abstract

This paper uses the 2013 Integrated Household Survey, collected by the Central Statistical Agency of Georgia (GeoStat), and data concerning government revenues and expenditures collected by the Ministry of Finance (MoF) along with other administrative agencies, and applies the CEQ methodology to analyze the progressivity of Georgia’s tax and transfer systems. The effects of a variety of policies are individually described, including personal income tax (PIT), value added tax (VAT) and excise tax. In addition, this paper assesses direct and in-kind transfers made by the Georgian government. The distributional effect of indirect subsidies, which are confined to the capital city, Tbilisi, are also considered, as well as the Agricultural Card program. The results show a stark difference between direct and indirect taxation. Direct taxes are progressive, and income tax is largely borne by high-income deciles. Meanwhile, the burden of indirect taxation is more evenly distributed, with the poor losing a higher percentage of income. Thus, the tax system is regressive. Overall, fiscal policy is progressive and equalizing, even before in-kind transfers for early education, and the Medical Insurance for the Poor (MIP), and Universal Health Care (UHC) programs are taken into account. The Targeted Social Assistance Program (TSA) and old-age pensions play a significantly pro-poor role. Fiscal incidence reduces poverty (under $2.50 USD’s per day) over 9 percentage points, the largest drop in poverty amongst the countries where CEQ analysis was performed. This paper concludes that excise taxes should be reassigned or eliminated to reduce regressivity, while PIT and the property tax could be broadened, which would expand the tax base.

Suggested Citation

  • Cesar Cancho & Elena Bondarenko, 2017. "The Distributional Impact of Fiscal Policy in Georgia," Commitment to Equity (CEQ) Working Paper Series 42, Tulane University, Department of Economics.
    • Handle: RePEc:tul:ceqwps:42
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    File URL: http://repec.tulane.edu/RePEc/ceq/ceq42.pdf
    File Function: First version, 2017
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    References listed on IDEAS

    as
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    Cited by:

    1. Nora Lustig, 2019. "Measuring the Distributional Impact of Taxation and Public Spending: The Practice of Fiscal Incidence Analysis," Commitment to Equity (CEQ) Working Paper Series 24, Tulane University, Department of Economics.
    2. Sally Torbert, 2022. "Impact Of Taxes And Transfers On Inequality In The Asia-Pacific Region," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 29(1), pages 43-65, May.
    3. Fuchs Tarlovsky,Alan & Matytsin,Mikhail & Nozaki,Natsuko Kiso & Popova,Daria, 2021. "Distributional Impacts of Taxes and Benefits in Post-Soviet Countries," Policy Research Working Paper Series 9795, The World Bank.

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    More about this item

    Keywords

    fiscal incidence; taxation; social spending; inequality; poverty; Georgia;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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