The Distributional Impact of Taxes and Social Spending in Romania
The combined effect of taxes and social spending in Romania helps to reduce inequality, although less so than in other European Union countries. However, the combination of direct and indirect taxes and transfers leads to an increase in poverty, as...
| Main Authors: | , |
|---|---|
| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/915561535028397212/The-distributional-impact-of-taxes-and-social-spending-in-Romania http://hdl.handle.net/10986/30292 |
| Summary: | The combined effect of taxes and social
spending in Romania helps to reduce inequality, although
less so than in other European Union countries. However, the
combination of direct and indirect taxes and transfers leads
to an increase in poverty, as direct cash transfers to poor
households are not large enough to compensate them for the
burden of indirect taxes. This is especially important for
rural households and families with children. Moreover,
recent reductions in the rates for personal income and
value-added taxes are expected to have led to an increase in
inequality, as most of the tax relief accrued to the top of
the income distribution. Although these changes likely
helped to reduce poverty, they were an expensive way to
achieve a small decline in the poverty rate. Higher and
better targeted social assistance spending could have
achieved better distributional results at a much lower
fiscal cost. These results call for greater use of
simulation tools that could inform policy makers and the
public of the fiscal costs and redistributive impacts of
proposed reforms. |
|---|