The Impact of Taxes and Social Spending on Inequality and Poverty in El Salvador

In, Nora Lustig (editor), Commitment to Equity Handbook. A Guide to Estimating the Impact of Fiscal Policy on Inequality and Poverty. Brookings Institution Press and CEQ Institute. (2016)

Center for Global Development Working Paper No. 447

30 Pages Posted: 7 Jan 2017

See all articles by Margarita Beneke

Margarita Beneke

La Fundación Salvadoreña para el Desarrollo Económico y Social

Nora Lustig

Tulane University

José Andrés Oliva

La Fundación Salvadoreña para el Desarrollo Económico y Social

Date Written: January 3, 2017

Abstract

We conducted a fiscal impact study to estimate the effect of taxes, social spending, and subsidies on inequality and poverty in El Salvador, using the methodology of the Commitment to Equity project. Taxes are progressive, but given their volume, their impact is limited. Direct transfers are concentrated on poor households, but their budget is small so their effect is limited; a significant portion of the subsidies goes to households in the upper income deciles, so although their budget is greater, their impact is low. The component that has the greatest effect on inequality is spending on education and health. Therefore, the impact of fiscal policy is limited and low when compared with other countries with a similar level of per capita income. There is room for improvement using current resources.

Keywords: fiscal incidence, poverty, inequality, El Salvador

JEL Classification: D31, H22, I14

Suggested Citation

Beneke, Margarita and Lustig, Nora Claudia and Oliva, José Andrés, The Impact of Taxes and Social Spending on Inequality and Poverty in El Salvador (January 3, 2017). In, Nora Lustig (editor), Commitment to Equity Handbook. A Guide to Estimating the Impact of Fiscal Policy on Inequality and Poverty. Brookings Institution Press and CEQ Institute. (2016), Center for Global Development Working Paper No. 447, Available at SSRN: https://ssrn.com/abstract=2893793

Margarita Beneke

La Fundación Salvadoreña para el Desarrollo Económico y Social ( email )

Nora Claudia Lustig (Contact Author)

Tulane University ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States

José Andrés Oliva

La Fundación Salvadoreña para el Desarrollo Económico y Social ( email )

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