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Measuring Impoverishment: An Overlooked Dimension of Fiscal Incidence

Author

Listed:
  • Sean Higgins

    (Department of Economics, Tulane University)

  • Nora Lustig

    (Department of Economics, Tulane University)

Abstract

The effect of taxes and benefits on the poor is usually measured using standard poverty and inequality indicators, stochastic dominance tests, and measures of progressivity and horizontal inequity. However, these measures can fail to capture an important aspect: that some of the poor are made poorer (or some of the non-poor made poor) by the tax-benefit system. We call this impoverishment and formally establish the relationships between impoverishment, stochastic dominance tests, horizontal inequity, and progressivity measures. The directional mobility literature provides a useful framework to measure impoverishment. We propose using a transition matrix and income loss matrix, and establish a mobility dominance criterion to compare alternate tax-benefit systems. We illustrate with data from Brazil.

Suggested Citation

  • Sean Higgins & Nora Lustig, 2013. "Measuring Impoverishment: An Overlooked Dimension of Fiscal Incidence," Working Papers 1315, Tulane University, Department of Economics.
    • Handle: RePEc:tul:wpaper:1315
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    File URL: http://repec.tulane.edu/RePEc/pdf/tul1315.pdf
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    References listed on IDEAS

    as
    1. Luis López-Calva & Eduardo Ortiz-Juarez, 2014. "A vulnerability approach to the definition of the middle class," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(1), pages 23-47, March.
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    More about this item

    Keywords

    stochastic dominance; poverty; fiscal incidence; mobility;
    All these keywords.

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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