The Distributional Impact of Taxes and Social Spending in Bhutan : An Application with Limited Income Data
This paper analyzes the distributional impact of the tax-benefit system in Bhutan. It makes two main contributions: first, this is the first substantive study of this kind in Bhutan, and second, due to limited information on incomes in the household survey, a consumption-based model is combined with Mincer-type earnings to derive estimates of incomes. The results show that the combined impact of government taxes and social spending is to reduce inequality and slightly increase poverty as of 2017. The increase in poverty is mainly due to the burden of indirect taxes and social contributions that are not offset by other transfers. Households in the bottom 80 percent are net receivers of fiscal interventions, with fiscal benefits primarily occurring through education and health benefits, which are both progressive. Most households did not pay much into the system as of 2017, as personal income taxes have a high exemption threshold and sales taxes only apply to a selected number of goods that are mainly consumed by richer households. Due to the lack of direct transfers, the net cash position is negative for poor households, although the magnitude is very small. Simulations suggest that the recent personal income tax reduction leads direct taxes to be slightly more progressive; however, the inequality-reducing impact is dampened. The goods and services tax is expected to increase indirect taxes for households across the distribution and is less progressive than the sales tax. This could lead to a temporary increase in poverty, which could be offset through direct transfers financed by the additional revenues.
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Format: | Working Paper biblioteca |
Language: | English English |
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World Bank, Washington, DC
2022-09
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Subjects: | DISTRIBUTIONAL IMPACT, FISCAL POLICY, FISCAL INCIDENCE, POVERTY, INEQUALITY, TAX-BENEFIT SYSTEM, SOCIAL SPENDING, GOVERNMENT TAXES AND BENEFITS, POVERTY REDUCTION, |
Online Access: | http://documents.worldbank.org/curated/en/099245309222299294/IDU0ace845e609c9204f330b4b3012caa30cafa3 http://hdl.handle.net/10986/38058 |
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dig-okr-10986380582022-09-27T05:10:47Z The Distributional Impact of Taxes and Social Spending in Bhutan : An Application with Limited Income Data Baquero, Juan Pablo Gao, Jia Kim, Yeon Soo DISTRIBUTIONAL IMPACT FISCAL POLICY FISCAL INCIDENCE POVERTY INEQUALITY TAX-BENEFIT SYSTEM SOCIAL SPENDING GOVERNMENT TAXES AND BENEFITS POVERTY REDUCTION This paper analyzes the distributional impact of the tax-benefit system in Bhutan. It makes two main contributions: first, this is the first substantive study of this kind in Bhutan, and second, due to limited information on incomes in the household survey, a consumption-based model is combined with Mincer-type earnings to derive estimates of incomes. The results show that the combined impact of government taxes and social spending is to reduce inequality and slightly increase poverty as of 2017. The increase in poverty is mainly due to the burden of indirect taxes and social contributions that are not offset by other transfers. Households in the bottom 80 percent are net receivers of fiscal interventions, with fiscal benefits primarily occurring through education and health benefits, which are both progressive. Most households did not pay much into the system as of 2017, as personal income taxes have a high exemption threshold and sales taxes only apply to a selected number of goods that are mainly consumed by richer households. Due to the lack of direct transfers, the net cash position is negative for poor households, although the magnitude is very small. Simulations suggest that the recent personal income tax reduction leads direct taxes to be slightly more progressive; however, the inequality-reducing impact is dampened. The goods and services tax is expected to increase indirect taxes for households across the distribution and is less progressive than the sales tax. This could lead to a temporary increase in poverty, which could be offset through direct transfers financed by the additional revenues. 2022-09-26T19:51:18Z 2022-09-26T19:51:18Z 2022-09 Working Paper http://documents.worldbank.org/curated/en/099245309222299294/IDU0ace845e609c9204f330b4b3012caa30cafa3 http://hdl.handle.net/10986/38058 English en Policy Research Working Papers;10190 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Policy Research Working Paper Publications & Research Bhutan |
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DISTRIBUTIONAL IMPACT FISCAL POLICY FISCAL INCIDENCE POVERTY INEQUALITY TAX-BENEFIT SYSTEM SOCIAL SPENDING GOVERNMENT TAXES AND BENEFITS POVERTY REDUCTION DISTRIBUTIONAL IMPACT FISCAL POLICY FISCAL INCIDENCE POVERTY INEQUALITY TAX-BENEFIT SYSTEM SOCIAL SPENDING GOVERNMENT TAXES AND BENEFITS POVERTY REDUCTION |
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DISTRIBUTIONAL IMPACT FISCAL POLICY FISCAL INCIDENCE POVERTY INEQUALITY TAX-BENEFIT SYSTEM SOCIAL SPENDING GOVERNMENT TAXES AND BENEFITS POVERTY REDUCTION DISTRIBUTIONAL IMPACT FISCAL POLICY FISCAL INCIDENCE POVERTY INEQUALITY TAX-BENEFIT SYSTEM SOCIAL SPENDING GOVERNMENT TAXES AND BENEFITS POVERTY REDUCTION Baquero, Juan Pablo Gao, Jia Kim, Yeon Soo The Distributional Impact of Taxes and Social Spending in Bhutan : An Application with Limited Income Data |
description |
This paper analyzes the
distributional impact of the tax-benefit system in Bhutan.
It makes two main contributions: first, this is the first
substantive study of this kind in Bhutan, and second, due to
limited information on incomes in the household survey, a
consumption-based model is combined with Mincer-type
earnings to derive estimates of incomes. The results show
that the combined impact of government taxes and social
spending is to reduce inequality and slightly increase
poverty as of 2017. The increase in poverty is mainly due to
the burden of indirect taxes and social contributions that
are not offset by other transfers. Households in the bottom
80 percent are net receivers of fiscal interventions, with
fiscal benefits primarily occurring through education and
health benefits, which are both progressive. Most households
did not pay much into the system as of 2017, as personal
income taxes have a high exemption threshold and sales taxes
only apply to a selected number of goods that are mainly
consumed by richer households. Due to the lack of direct
transfers, the net cash position is negative for poor
households, although the magnitude is very small.
Simulations suggest that the recent personal income tax
reduction leads direct taxes to be slightly more
progressive; however, the inequality-reducing impact is
dampened. The goods and services tax is expected to increase
indirect taxes for households across the distribution and is
less progressive than the sales tax. This could lead to a
temporary increase in poverty, which could be offset through
direct transfers financed by the additional revenues. |
format |
Working Paper |
topic_facet |
DISTRIBUTIONAL IMPACT FISCAL POLICY FISCAL INCIDENCE POVERTY INEQUALITY TAX-BENEFIT SYSTEM SOCIAL SPENDING GOVERNMENT TAXES AND BENEFITS POVERTY REDUCTION |
author |
Baquero, Juan Pablo Gao, Jia Kim, Yeon Soo |
author_facet |
Baquero, Juan Pablo Gao, Jia Kim, Yeon Soo |
author_sort |
Baquero, Juan Pablo |
title |
The Distributional Impact of Taxes and Social Spending in Bhutan : An Application with Limited Income Data |
title_short |
The Distributional Impact of Taxes and Social Spending in Bhutan : An Application with Limited Income Data |
title_full |
The Distributional Impact of Taxes and Social Spending in Bhutan : An Application with Limited Income Data |
title_fullStr |
The Distributional Impact of Taxes and Social Spending in Bhutan : An Application with Limited Income Data |
title_full_unstemmed |
The Distributional Impact of Taxes and Social Spending in Bhutan : An Application with Limited Income Data |
title_sort |
distributional impact of taxes and social spending in bhutan : an application with limited income data |
publisher |
World Bank, Washington, DC |
publishDate |
2022-09 |
url |
http://documents.worldbank.org/curated/en/099245309222299294/IDU0ace845e609c9204f330b4b3012caa30cafa3 http://hdl.handle.net/10986/38058 |
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