Children and the Fiscal Space in Ethiopia

This study investigates the effects of public transfers and taxes on the wellbeing of childrenin Ethiopia. It applies the Commitment to Equity for Children methodology to examine the burdens of taxation andthe benefits from government transfers and spending, and their differential wellbeing impacts on children. The studyintegrates data from the 2018/19 Ethiopia Socioeconomic Survey, which also collected data on taxes and transfers,with administrative data. Measuring its distribution by child monetary and multidimensional wellbeing, the studyfinds, on average, a progressive, poverty-reducing and equalizing fiscal system. However, there are importantdifferences in the distribution of some of its elements. Indirect taxes, comprising of value-added and excise taxes,are regressive. Similarly, primary education spending, the largest of in-kind transfers, is only progressive in urbanareas. On poverty and inequality, the fiscal system reduced the monetary child poverty headcount by 21 percent and thepoverty gap by 33 percent. The effect is stronger for girls and children in rural areas than for boys and children inurban areas, therefore reducing inequalities in poverty rates. However, this is only the case when in-kind transfersfor education and health are considered. Without the inclusion of in-kind transfers, the study finds that thefiscal system is not well calibrated to reduce poverty. This highlights the essential role of public services, not onlyin delivering fundamental child rights, but also in reducing poverty among children.