Many governments try to reduce poverty and inequality through a mixture of taxes, transfers, and public services. Individual policies, such as taxation or cash transfers, are frequently evaluated on how well they address these goals. But the overall impact of a country’s fiscal policy package on poverty and inequality has rarely been subject to systematic analysis—until now.
Nora Lustig, a non-resident fellow at CGD and a professor at Tulane, has set out to close this gap with the Commitment to Equity Assessment or CEQ. I invited Nora to tell us about this new endeavor.
Nora explains that the CEQ is both a virtual toolbox—that is, a common analytical approach—and a global network of researchers who are applying this approach in a series of country case studies. CEQ partner institutions include Tulane University, the Inter-American Dialogue, and now CGD, which is helping to bring the approach and the case study findings to a broad international audience. These materials will be collected on a CEQ landing page that is part of the Center’s ongoing work on inequality.
The assessment initially focused on Latin America, the region Nora knows best. But with encouragement and funding from the World Bank and the Bill and Melinda Gates Foundation, the CEQ is growing rapidly to include countries in other regions, among them South Africa, Tanzania, Ghana, Tunisia, Armenia, Jordan, Sri Lanka, and Indonesia.
What exactly can we learn from such assessments? Nora offers Brazil as an example. Brazil is reputed to be well-run and pro-poor in its policies, especially for direct taxes and cash transfer programs such as Bolsa Familia. However, throwing consumption taxes into the mix considerably darkens the picture of equity. Because Brazil lays heavy taxes on the goods that the poor purchase frequently, such as rice and beans, the CEQ analysis shows that overall taxation policies actually worsen poverty. (Interestingly, they do not worsen inequality, listen to the Wonkcast or read this new CEQ/CGD paper to find out why!)
I also ask Nora whether reducing the tax burden on the poor and near poor, as the CEQ analysis suggests should be done, may have reduced incentives for these people to hold their governments accountable, thereby undermining the quality of governance. Listen to the Wonkcast for Nora’s intriguing reply, and examples of countries where the CEQ is already beginning to shape the policy dialogue.
My thanks to Kristina Wilson for recording and editing the Wonkcast, as well as providing a first draft of this blog post.