Linking taxation and social protection: Evidence on redistribution and poverty reduction in Ethiopia

Abstract

Although redistribution results from the simultaneous effects of taxes and transfers, analyses of their distributional effects in low‐income countries have largely been undertaken from singular perspectives. This article jointly assesses the distributional effect of taxes and transfers (through social protection) using Ethiopia as a case study. We find that Ethiopia's flagship social protection programme is more effective than income taxation in achieving poverty reduction, while neither policy achieves a sizeable reduction in overall inequality. We also find that Ethiopia does not currently have the capacity to close the poverty gap or to fully fund its main safety net programme using domestic income sources alone.

The impact of tax reforms on human development index: Literature review approach

“…Among reviewed studies, many of them employed a quantitative approach to examine the impact of taxation and its reforms on Human Development (refer to Table A2), and the human development as a dependent variable was proxied by the following: (i) HDI Value figures as reported in the UNDP Reports; (ii) Standard of living which was represented by Income per Capita; (iii) Unemployment rate; (iv) Economic development represented by GNI per capita; (v) Economic Growth represented by Real GDP per capita; (vi) Infant Mortality Rate and (vii) Dependency ratios—both youth and old age ratios (Alavuotunki et al, 2019; Bishnu, 2018; GHD, 2015; Isaac et al, 2021; Hirvonen et al, 2018; Jouini et al, 2018; Keen, 2014; Kolhe, 2017; Leonardo et al, 2015; Ngerebo‐A & Orji, 2018; Ogochukwu, 2021; Saragih, 2018; Shakoori, 2021; Sorana et al, 2019; just to mention few literatures).…”

“…On the other hand, the factors used to explain Human Development include: (i) Direct Tax to GDP ratio, (ii) Total Tax to GDP ratio, (iii) GINI Coefficient, (iv) Economic Growth rate, (v) Employment rate, (vi) petroleum profit tax, (vii) Company Income Tax, (viii) Personal Income Tax, (ix) VAT (x) Customs and Excise Duty, (xi) Specific Sin Taxes—tobacco tax, (xii) prices of sin products, (xiii) population growth—representing population size, (xiv) social security contributions, (xv) Public Expenditure (on social protection programs, education, health, and housing), (xvi) corruptions and/or governance (Alavuotunki et al, 2019; Bishnu, 2018; GHD—030, 2015; Hirvonen et al, 2018; Isaac et al, 2021; Jouini et al, 2018; Keen, 2014; Kolhe, 2017; Leonardo et al, 2015; Ngerebo‐A & Orji, 2018; Ogochukwu, 2021; Reeves et al, 2015; Saragih, 2018; Shakoori, 2021; Sorana et al, 2019; just to mention few literatures).…”

Governing the Interlinkages between the SDGs

“…On the one hand is the contribution of value added and indirect taxes on consumption. However, revenues FIGURE 12.4 Annualized long-term changes in tax revenue as a percentage of GDP Source: Author's own elaboration from such taxes can increase out of pocket expenditure and thereby have a regressive impact on income poverty, unless governments are able to use the revenue from the indirect taxes for the purposes of public spending on social protection, health and education (Hirvonen, Mascagni, and Roelen, 2018;Muñoz and Cho, 2004). Many countries in East Asia introduced the 'sin taxes' on goods such as alcohol, tobacco, and sugar, which are hazardous for health.…”

Social protection expansions during crisis and fiscal space: From ad hoc to durable solutions?

“…Though arguably taxation then only captures one side of the fiscal contract, the distribution side-namely social protection-has often been studied separately. Hence, a view that connects both the collection and the distribution side of the fiscal contract has been explored in recent studies concerned with their overall distributional effects (for example, Bastagli 2015;Hirvonen et al 2018) or the financing of social protection (for example, Barrientos 2008;Barrientos and Hulme 2009). In this study, I use a fiscal contract perspective to link taxation and pandemic relief measures by focusing on assessing ad hoc modifications and their feasibility, as explained below.…”