How does fiscal austerity impact on poverty and inequality? The Spanish case

The aim of this paper is contributing to fill the gap between the macroeconomic effects of policy reforms and the microeconomic and social ones, considering simultaneously both kind of impacts. Regarding fiscal adjustments, concern about the sustainability of public deficit and debt resulting from the Great Recession led governments to adopt austerity measures in most European countries. Our analysis considers the redistributive effects of such adjustments for the Spanish economy by simulating a hypothetical reduction of public deficit and distinguishing between spending cuts and tax hikes. In terms of analytical approach, a Computable General Equilibrium (CGE) model and a microsimulation model are integrated to include the general equilibrium effects of these measures as well as the effects on income distribution. The results contribute to the growing but limited literature on the distributional effects of fiscal consolidations by showing that policymakers have to choose between more inequality or more poverty.

The political economy of inflation

For the last 40 years, macroeconomics has been dominated by Milton Friedman’s view that inflation occurs when the supply of money rises more quickly than economic output – ‘too much money chasing too few goods’, as the saying goes. If inflation is always due to an imbalance of money supply and output, central banks alone determine the path of inflation, and fiscal policy merely has a redistributive function. This paper draws on historical and empirical evidence as well as recent theoretical literature to show that this view is mistaken. Monetary policy has redistributive effects, and fiscal policy affects the money supply. It is therefore impossible to separate them in practice. Both fiscal and monetary policy have inflationary consequences, and because their distributional effects are different, monetary policy cannot fully offset fiscal decisions. Fiscal and monetary policy are influenced by political decisions and are themselves political in nature. Since inflation reflects spending and saving patterns which are affected by political choices, it is fundamentally a political phenomenon.

Assessing the Equity and Redistributive Effects of Taxation Reforms in Nigeria

Achieving the Sustainable Development Goals (SDGs) of poverty and inequality reduction through redistribution have indeed become critical concerns in many low- and middle-income countries, including Nigeria. Although redistribution results from the effect of tax revenue collections, micro household-level empirical analyses of the distributional effect of personal income tax (PIT) and value added tax (VAT) reforms in Nigeria have been scarcely carried out. This study for the first time quantitatively assessed both the equity and redistributive effects of PIT and VAT across different reform scenarios in Nigeria. Data used in this study was mainly drawn from the most recent large scale nationally representative Nigeria Living Standard Survey, conducted in 2018/2019. The Kakwani Index was used to calculate and compare the progressivity of PIT and VAT reforms. A simple static micro-simulation model was employed in assessing the redistributive effect of PIT and VAT reforms in the country. After informality has been accounted for, the PIT was found to be progressive in the pre- 2011 tax scheme, but turned regressive in the post-2011 tax scheme. It was also discovered that the newly introduced lump sum relief allowance in the post-2011 PIT scheme accrues more to the high-income than to the low-income taxpayers – confirming the regressivity of the current PIT scheme. However, the study further shows (through counterfactual simulations) that excluding the relatively high-income taxpayers from sharing in the variable part of the lump sum relief allowance makes PIT progressive in the post-2011 scheme. The VAT was uncovered to be regressive both in the pre-2020 scheme, and in the current VAT reform scheme. Further, after putting informality into consideration, the PIT was found to marginally reduce inequality but increase poverty in the pre-2011 scheme. The post-2011 PIT scheme reduced inequality and increased poverty, but by a smaller proportion – confirming a limited redistribution mainly resulting from the concentration of the lump sum relief allowance at the top of the distribution. However, if the variable part of the lump sum relief allowance is provided for ‘only’ the low-income taxpayers below a predefined income threshold, the post-2011 PIT scheme becomes largely redistributive. VAT was uncovered to marginally increase inequality and poverty in the pre-2020 scheme. Though the current VAT scheme slightly increased inequality, it considerably increased poverty in the country. It is therefore suggested that a better tax reform, with well-regulated relief allowance and differentiated VAT rates, will help to enhance the equity and redistribution capacity of the Nigeria tax system.

Winners and Losers: The Distributional Effects of the French Feebate on the Automobile Market

I quantify the welfare and environmental gains and losses from a policy establishing an environmental tax/subsidy for new cars in France in 2008. I estimate a structural model of demand and supply that features heterogeneity in consumer preferences to go beyond the average policy effects and analyse distributional aspects. The policy reduces average carbon emissions by 1.6% at the cost of additional emissions of local pollutants. The regulation favours middle-income individuals but has redistributive effects when combined with a tax that is proportional to income. Moreover, local pollutant emissions increase least in poor and rural areas, suggesting another redistribution channel.

Redistributive effects of health care out-of-pocket payments in Cameroon

Background The bulk of health care financing in Cameroon is derived from out-of-pocket payments. Given that poverty is pervasive, with a third of the population living below the poverty line, health care financing from out-of-pocket payments is likely to have redistributive and equity effects. In addition, out-of-pocket payments on health care can limit the ability of households to afford non-healthcare goods and services. Method The study estimates the Kakwani index for analyzing tax progressivity and applies the model developed by Aronson, Johnson, and Lambert (1994) to measure the redistributive effects of health care financing using data from the 2014 Cameroon Household Survey. The estimated indexes measure the extent of the progressivity of health care payments and the reranking that results from the payments. Results The results indicate that out-of-pocket payments for health care in Cameroon in 2014 represented a significant share of household prepayment income. The results also show some evidence of inequity as few people change ranks after payment despite the slight progressivity of health care out-of-pocket payments. Conclusion The existence of some disparities among income groups implies that the burdens of ill-health and out-of-pocket payments are unequal. The detected disparities within income groups can be reduced by targeting low-income groups through increases in government expenditures on health care and pro-poor prioritization of the expenditures.

Bringing society back into our understanding of European cross-border care

We are pleased to discuss our study on the European Health Insurance Card (EHIC) and the redistributive effects of EHIC-related east–west patient and payment flows across regions and social classes. Our critics confirm our key finding: EHIC patient outflows from Eastern European (EE) to Western European (WE) countries result in a much higher relative burden for the budgets of EE states than outflows from WE to EE do for WE countries. Starting from what they see as the true mission of social security coordination, however, they also tell us that we should never have studied the redistributive impact of EHIC patient and payment flows in the first place. In this response, we therefore explicate the differences between our empirical sociological perspective and our critics’ normative legal approach. This is important, especially when social facts contradict normative legal assumptions as in our case. The EU laws that govern EHIC patient and payment flows are indeed based on the free movement provisions of the EU’s internal market project, but our empirical findings show that the promise of ‘economic, social and territorial cohesion, and solidarity among Member States’ contained in Article 3.3 of the Treaty of the European Union is not realized in practice in the case of east–west EHIC payment flows and patient mobility.

Intergenerational Redistributive Effects of Monetary Policy

This paper investigates the distributional consequences of monetary policy across generations. We use a life-cycle model with a rich asset structure as well as nominal and real rigidities, calibrated to the euro area using both macroeconomic aggregates and microeconomic evidence from the Household Finance and Consumption Survey. We show that the life-cycle profiles of income and asset accumulation decisions are important determinants of redistributive effects of monetary shocks. The redistribution is mainly driven by nominal assets and labor income, less by real financial assets and housing. Overall, we find that a typical monetary policy easing redistributes welfare from older to younger generations, and decreases net worth inequality associated with life-cycle motives.