Publication: The Impact of Fiscal Policy on Inequality and Poverty in Zambia
Loading...
Date
2017-11
ISSN
Published
2017-11
Editor(s)
Abstract
This study assesses the redistributive impact of fiscal policy––and its individual elements––in Zambia. Zambia's 2015 fiscal policy reduces inequality; the largest reduction is created by in-kind public service expenditures on education. However, fiscal policy also increases poverty in three ways: (1) there is a relatively low level of targeted, direct-transfer spending; (2) energy subsidies, which do not reach many poor households, absorb a large share of expenditures; and (3) tax instruments create a burden greater than what is received as direct or indirect benefits from subsidies or direct transfers. The number of poor and vulnerable individuals who experience net cash subtractions from their incomes is greater than the number of poor and vulnerable individuals who experience net additions. Eliminating subsidy spending while compensating poor households would help fiscal policy achieve poverty reduction and even greater inequality reduction. If subsidies on fuel, electricity, and agricultural inputs were eliminated without any compensatory mechanism, such as an increase in the Social Cash Transfer program's coverage and benefit levels, the impact of fiscal policy on poverty would likely be muted. In 2015, Zambia exempted over 80 percent of the average household's consumption basket. However, value-added tax exemptions imply only that some portion of value-added is not taxed, and so do not entirely eliminate a value-added tax burden. A more efficient way to deliver net benefits to poor and vulnerable households is through targeted cash transfers at a scale large enough to compensate for the burden created across households by value-added tax and other indirect taxes.
Link to Data Set
Citation
“De La Fuente, Alejandro; Rosales, Manuel; Jellema, Jon. 2017. The Impact of Fiscal Policy on Inequality and Poverty in Zambia. Policy Research Working Paper;No. 8246. © World Bank. http://hdl.handle.net/10986/28907 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication The Future of Poverty(Washington, DC: World Bank, 2025-07-15)Climate change is increasingly acknowledged as a critical issue with far-reaching socioeconomic implications that extend well beyond environmental concerns. Among the most pressing challenges is its impact on global poverty. This paper projects the potential impacts of unmitigated climate change on global poverty rates between 2023 and 2050. Building on a study that provided a detailed analysis of how temperature changes affect economic productivity, this paper integrates those findings with binned data from 217 countries, sourced from the World Bank’s Poverty and Inequality Platform. By simulating poverty rates and the number of poor under two climate change scenarios, the paper uncovers some alarming trends. One of the primary findings is that the number of people living in extreme poverty worldwide could be nearly doubled due to climate change. In all scenarios, Sub-Saharan Africa is projected to bear the brunt, contributing the largest number of poor people, with estimates ranging between 40.5 million and 73.5 million by 2050. Another significant finding is the disproportionate impact of inequality on poverty. Even small increases in inequality can lead to substantial rises in poverty levels. For instance, if every country’s Gini coefficient increases by just 1 percent between 2022 and 2050, an additional 8.8 million people could be pushed below the international poverty line by 2050. In a more extreme scenario, where every country’s Gini coefficient increases by 10 percent between 2022 and 2050, the number of people falling into poverty could rise by an additional 148.8 million relative to the baseline scenario. These findings underscore the urgent need for comprehensive climate policies that not only mitigate environmental impacts but also address socioeconomic vulnerabilities.Publication Exports, Labor Markets, and the Environment(Washington, DC: World Bank, 2025-07-14)What is the environmental impact of exports? Focusing on 2000–20, this paper combines customs, administrative, and census microdata to estimate employment elasticities with respect to exports. The findings show that municipalities that faced increased exports experienced faster growth in formal employment. The elasticities were 0.25 on impact, peaked at 0.4, and remained positive and significant even 10 years after the shock, pointing to a long and protracted labor market adjustment. In the long run, informal employment responds negatively to export shocks. Using a granular taxonomy for economic activities based on their environmental impact, the paper documents that environmentally risky activities have a larger share of employment than environmentally sustainable ones, and that the relationship between these activities and exports is nuanced. Over the short run, environmentally risky employment responds more strongly to exports relative to environmentally sustainable employment. However, over the long run, this pattern reverses, as the impact of exports on environmentally sustainable employment is more persistent.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication The Asymmetric Bank Distress Amplifier of Recessions(Washington, DC: World Bank, 2025-07-11)One defining feature of financial crises, evident in U.S. and international data, is asymmetric bank distress—concentrated losses on a subset of banks. This paper proposes a model in which shocks to borrowers’ productivity dispersion lead to asymmetric bank losses. The framework exhibits a “bank distress amplifier,” exacerbating economic downturns by causing costly bank failures and raising uncertainty about the solvency of banks, thereby pushing banks to deleverage. Quantitative analysis shows that the bank distress amplifier doubles investment decline and increases the spread by 2.5 times during the Great Recession compared to a standard financial accelerator model. The mechanism helps explain how a seemingly small shock can sometimes trigger a large crisis.Publication Impact of Heat Waves on Learning Outcomes and the Role of Conditional Cash Transfers(Washington, DC: World Bank, 2025-07-14)This paper evaluates the impact of higher temperatures on learning outcomes in Peru. The results suggest that 1 degree above 20°C is equivalent to 7 and 6 percent of a standard deviation of what a student learns in a year for math and reading tests, respectively. These results hold true when the main specification is changed, splitting the sample, collapsing the data at school level, and using other climate specifications. The paper aims to improve understanding of how to deal with the impacts of climate change on learning outcomes in developing countries. The evidence suggests that conditional cash transfer programs can mitigate the negative effects of higher temperatures on students’ learning outcomes in math and reading.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Impact of Fiscal Policy on Inequality and Poverty in the Arab Republic of Egypt(World Bank, Washington, DC, 2019-04)This study assesses the redistributive impact of fiscal policy –– including expenditures and taxation –– in the Arab Republic of Egypt. Using a broadly applied methodology, a fiscal incidence analysis is conducted using survey and government data for fiscal year 2015. Evidence shows that Egyptian fiscal policy reduces income inequality, and that among individual fiscal programs, the largest reduction is due to public expenditures on the primary education system. Compared with similar countries, Egypt's overall fiscal policy placed it in the median of the distribution of inequality reduction. Fiscal policies in Egypt also led to a decrease in poverty, mostly from the flagship Tamween program. Poverty and inequality could be reduced more effectively if the country would shift away from spending on untargeted energy subsidies to more targeted transfers. The large gap between the government's expenditures and revenues helps explain the positive outcomes on poverty and inequality but poses challenges in the long term.Publication Impact of Fiscal Policy on Poverty and Inequality in Uganda(World Bank, Washington, DC, 2019-10)This study analyzes the incidence of public revenues (tax collection) and expenditures (including direct and indirect transfers, indirect subsidies, and in-kind transfers) on the level of poverty and inequality in Uganda, using the internationally recognized methodology developed by the Commitment to Equity institute. The results show that Uganda's fiscal policy is moderately equalizing and lowers the Gini coefficient by 3.2 points. The personal income tax, followed by education in-kind transfers, are the biggest contributors to reducing inequality. Although equalizing, fiscal policy is poverty-inducing in Uganda. Direct transfers are pro-poor in distribution but are not large enough to counteract the purchasing power reductions from indirect taxes; the poverty headcount ratio increases by 2.3 percentage points. Going forward, the combination of raising additional revenue by broadening the personal income tax base and removing valued-added tax exemptions while using the additional resources to increase the size and coverage of pro-poor direct transfers programs may alleviate poverty and reduce inequality.Publication The Impact of Fiscal Policy on Inequality and Poverty in Chile(World Bank, Washington, DC, 2017-01)This paper applies a comprehensive tax-benefit incidence analysis to estimate the distributional effects of fiscal policy in Chile in 2013. Four results are indicative of an overall positive net effect of fiscal interventions on poverty and inequality. First, subsidies exert a positive, yet modest effect on poverty and inequality, whereas direct transfers are progressive, equalizing, and reduce the poverty headcount by 4 to 5 percentage points, depending on the poverty line used. Second, although social contributions are unequalizing and poverty-increasing, direct taxes on personal income are equalizing and poverty-neutral, whereas indirect taxes are poverty-increasing but exert a counterintuitive, yet feasible equalizing effect known as Lambert's conundrum. Third, social spending on tertiary education is slightly equalizing but it is not pro-poor, contrary to the effects of social spending on basic and secondary education and health, which are not only equalizing but also pro-poor. Finally, the net effect of Chile's tax/transfer system leaves fewer individuals impoverished relative to the number of fiscal gainers, and the magnitude of monetary fiscal gains is significantly higher than that of fiscal impoverishment.Publication Mapping Subnational Poverty in Zambia(World Bank, Washington, DC, 2015-03-01)Many challenges were identified during the Fifth National Development Plan (FNDP) in Zambia. To address these challenges and realize pro-poor growth, the Sixth National Development Plan (SNDP) was set in motion. The SNDP, which covers 2011 to 2015, was designed to accomplish three goals: to accelerate infrastructure development (roads, bridges, air, water, rail and border infrastructure, feeder roads, water canals, tourist access roads), to improve the provision of basic services including water and sanitation, electricity access, health, education and skills development to promote rural investment; and to accelerate poverty reduction, mainly through the continued implementation of the Rural Finance Program and to enhance human development.Publication Living on the Edge : Vulnerability to Poverty and Public Transfers in Mexico(World Bank Group, Washington, DC, 2015-01)Social policy in Mexico has focused on identifying and supporting chronically poor households. Yet, Mexico has a significant number of households that are just above the poverty line who are not eligible, by definition, for antipoverty programs and are at risk of falling back into poverty in the event of an economic crisis or shocks like loss of employment and natural disasters. These shocks can have serious negative effects on welfare in the absence of social safety nets targeted to these households. This study uses household survey data to better understand these "vulnerable" households, including their profile and risk exposure and, more importantly, to document the extent to which these households are covered by public transfers and insurance mechanisms. The analysis shows that until 2010 most social programs, including the few with productive components, such as vocational training and productive investment grants, barely covered the vulnerable. The study concludes that public policies need to pay attention to the vulnerable households and find the right policy mix between targeted interventions and universal insurance schemes to serve this economic group.
Users also downloaded
Showing related downloaded files
Publication World Development Report 2017(Washington, DC: World Bank, 2017-01-30)Why are carefully designed, sensible policies too often not adopted or implemented? When they are, why do they often fail to generate development outcomes such as security, growth, and equity? And why do some bad policies endure? This book addresses these fundamental questions, which are at the heart of development. Policy making and policy implementation do not occur in a vacuum. Rather, they take place in complex political and social settings, in which individuals and groups with unequal power interact within changing rules as they pursue conflicting interests. The process of these interactions is what this Report calls governance, and the space in which these interactions take place, the policy arena. The capacity of actors to commit and their willingness to cooperate and coordinate to achieve socially desirable goals are what matter for effectiveness. However, who bargains, who is excluded, and what barriers block entry to the policy arena determine the selection and implementation of policies and, consequently, their impact on development outcomes. Exclusion, capture, and clientelism are manifestations of power asymmetries that lead to failures to achieve security, growth, and equity. The distribution of power in society is partly determined by history. Yet, there is room for positive change. This Report reveals that governance can mitigate, even overcome, power asymmetries to bring about more effective policy interventions that achieve sustainable improvements in security, growth, and equity. This happens by shifting the incentives of those with power, reshaping their preferences in favor of good outcomes, and taking into account the interests of previously excluded participants. These changes can come about through bargains among elites and greater citizen engagement, as well as by international actors supporting rules that strengthen coalitions for reform.Publication Africa's Future, Africa's Challenge : Early Childhood Care and Development in Sub-Saharan Africa(Washington, DC : World Bank, 2008)This book seeks to achieve a balance, describing challenges that are being faced as well as developments that are underway. It seeks a balance in terms of the voices heard, including not just voices of the North commenting on the South, but voices from the South, and in concert with the North. It seeks to provide the voices of specialists and generalists, of those from international and local organizations, from academia and the field. It seeks a diversity of views and values. Such diversity and complexity are the reality of Sub-Saharan Africa (SSA) today. The major focus of this book is on SSA from the Sahel south. Approximately 130 million children between birth and age 6 live in SSA. Every year 27 million children are born, and every year 4.7 million children under age 5 die. Rates of birth and of child deaths are consistently higher in SSA than in any other part of the world; the under-5 mortality rate of 163 per 1,000 is twice that of the rest of the developing world and 30 times that of industrialized countries (UNICEF 2006). Of the children who are born, 65 percent will experience poverty, 14 million will be orphans affected by HIV/AIDS directly and within their families and one-third will experience exclusion because of their gender or ethnicity.Publication Ten Steps to a Results-Based Monitoring and Evaluation System : A Handbook for Development Practitioners(Washington, DC: World Bank, 2004)An effective state is essential to achieving socio-economic and sustainable development. With the advent of globalization, there are growing pressures on governments and organizations around the world to be more responsive to the demands of internal and external stakeholders for good governance, accountability and transparency, greater development effectiveness, and delivery of tangible results. Governments, parliaments, citizens, the private sector, Non-governmental Organizations (NGOs), civil society, international organizations, and donors are among the stakeholders interested in better performance. As demands for greater accountability and real results have increased, there is an attendant need for enhanced results-based monitoring and evaluation of policies, programs, and projects. This handbook provides a comprehensive ten-step model that will help guide development practitioners through the process of designing and building a results-based monitoring and evaluation system. These steps begin with a 'readiness assessment' and take the practitioner through the design, management, and importantly, the sustainability of such systems. The handbook describes each step in detail, the tasks needed to complete each one, and the tools available to help along the way.Publication Zimbabwe(World Bank, Washington, DC, 2019-03-01)This report presents an assessment of Zimbabwe’s agriculture sector disaster risk and management capacity. The findings indicate that Zimbabwe is highly exposed to agricultural risks and has limited capacity to manage risk at various levels. The report shows that disaster-related shocks along Zimbabwe’s agricultural supply chains directly translate to volatility in agricultural GDP. Such shocks have a substantial impact on economic growth, food security, and fiscal balance. When catastrophic disasters occur, the economy absorbs the shocks, without benefiting from any instruments that transfer the risk to markets and coping ability. The increasing prevalence of ‘shock recovery-shock’ cycles impairs Zimbabwe’s ability to plan and pursue a sustainable development path. The findings presented here confirm that it is highly pertinent for Zimbabwe to strengthen the capacity to manage risk at various levels, from the smallholder farmer, to other participants along the supply chain, to consumers (who require a reliable, safe food supply), and ultimately to the government to manage natural disasters. The assessment provides the following evidence on sources of risks and plausible risk management solutions. It is our hope that the report contributes to action by the Government of Zimbabwe to adopt a proactive and integrated risk management strategy appropriate to the current structure of the agricultural sector.Publication World Development Report 1984(New York: Oxford University Press, 1984)Long-term needs and sustained effort are underlying themes in this year's report. As with most of its predecessors, it is divided into two parts. The first looks at economic performance, past and prospective. The second part is this year devoted to population - the causes and consequences of rapid population growth, its link to development, why it has slowed down in some developing countries. The two parts mirror each other: economic policy and performance in the next decade will matter for population growth in the developing countries for several decades beyond. Population policy and change in the rest of this century will set the terms for the whole of development strategy in the next. In both cases, policy changes will not yield immediate benefits, but delay will reduce the room for maneuver that policy makers will have in years to come.