Fiscal Incidence in Armenia

We use methods developed by the Commitment to Equity Institute and data from the 2011 Integrated Living Conditions Survey (ILCS) to assess the effects of government taxation and social spending on poverty and inequality in Armenia. We find that Armenia achieves considerable redistribution despite a relatively small budget. More than half of this redistribution is due to old-age pensions. Results for poverty reduction are less encouraging. At a poverty line of US$2.50 per day, which is similar to Armenia’s national poverty line, the fisc lowers the headcount by 0.084, but at the US$4.00 poverty line, the fisc actually increases the headcount slightly (0.019). Even though transfers are reasonably well-targeted in Armenia, taxes, especially indirect taxes, do fall on poorer households, thus offsetting the poverty-reducing effect of public expenditures. Expenditure targeting in Armenia is very good. Expenditures that are supposed to help the poor and vulnerable go disproportionately to the poor, as they should. At the same time, expenditures on services that should be universal – education and health care – are spread fairly evenly across the population, as they should be. Given already good targeting, Armenia’s only option for greater redistribution is larger budgets for the besttargeted expenditures such as the Family Benefit.