On Pro-Poor Government Fiscal Policies
With Application to the Philippines
February 1, 2001
By Nanak Kakwani, Hyun Son
This paper is concerned with the assessment of government fiscal policies from the viewpoint of poverty reduction. A fiscal system has many components. The main objective of the paper is to measure the degree of pro-poorness of various components and how the overall fiscal system can be reformed in order to achieve a maximum reduction in poverty.
The paper also discusses the issue of reforming indirect taxes and subsidies in view of reducing poverty. This task can be accomplished by deriving the poverty elasticity with respect to prices of individual commodities. This elasticity is also decomposed into an income effect and a redistribution effect. The poverty reform index, derived from this decomposition, is then employed to assess indirect taxes and subsidies again from the viewpoint of achieving a maximum reduction in poverty. The methodology developed in the paper is applied to the Philippines utilizing the 1998 Annual Poverty Indicator Survey (APIS). This survey gathers detailed information on different sources of income and expenditures from 78 provinces and all cities and municipalities of Metro Manila.
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