World Bank2025-03-032025-03-032025-03-03https://hdl.handle.net/10986/42898The Special Issue analyzes the impact of taxes and transfers on poverty and inequality in the TCc. It shows that fiscal policy has only a limited impact on reducing inequality, but the system cannot reduce poverty. The Special Issue provides an initial step towards understanding the distributional impact of fiscal policy in the TCc. The Special Issue builds on the first-ever Commitment to Equity (CEQ) model developed for the TCc, which analyzes the impact of taxes and transfers on poverty and inequality. The latest announced estimates from the 2015 Household Budget Survey show that relative poverty is 22.2 percent. Income inequality is also high based on 2015 HBS, with the Gini coefficient estimated at 34 percent, three percentage points above the EU average. The TC fiscal practices contribute to a moderate reduction only in income inequality. Overall, inequality in the TCc drops from 0.445 to 0.361 after fiscal interventions, a reduction of around 0.08 Gini point and among the lowest levels observed. When looking at the impact on poverty, while transfers and direct taxes have a redistributive effect, indirect taxes significantly negatively impact household budgets and lead to an increase in poverty from 21.8 to 25.5 percent. In-kind transfers, such as health and education, have important redistributive effects and lift the impact of fiscal policy in the bottom half of the distribution. When in-kind transfers are excluded from the analysis, all households beginning in the second decile are net payers to the system, as the share of taxes paid exceeds the cash benefits received for all but the poorest 10 percent of the population. When included, instead, all households in the 1st to 5th decile result as net beneficiaries, reporting a favorable net fiscal position. Overall, the results point to potential improvements that could be achieved in the TCc through a more effective system of taxes and transfers to reduce the burden on the poor and address inequality.en-USCC BY-NC 3.0 IGOECONOMIC GROWTHNO POVERTYINEQUALITYPOVERTY AND INEQUALITYINCOME INEQUALITYHOUSEHOLD BUDGET SURVEY (HBS)ReportWorld Bank10.1596/42898https://doi.org/10.1596/42898