Distributional impact of taxes and social transfers in Russia over the downturn

Low oil prices and the recession in Russia which started in 2014 are increasing pressures for fiscal consolidation, after more than a decade of prosperity. This paper assesses the distributional impact of the main tax and social spending programs in Russia in 2014 by applying a state-of-the-art incidence analysis. Overall, the Russian welfare state achieves a moderate reduction in inequality through tax-benefit policies by international standards. Most redistribution occurs through pensions. Major limits on the redistributive effect of tax-benefit policy include the large share of tax revenues that come from (regressive) indirect taxes, the neutral impact of personal income taxes and the low share of spending that goes on social assistance targeted to low-income groups. Tax-benefit policy also has an important impact on the age distribution of income, as households of working-age people (with and without children) subsidize pensioner households

Trends, Drivers, and Challenges

This paper has the goal of presenting the first comprehensive update of poverty, inequality and shared prosperity trends – and key drivers of these trends – since 2003 until 2015, that is starting with the end of the most recent poverty assessment published in 2004 and that covered the period 1997-2002. In addition to discussing the past trends, the paper also aims to present some emerging challenges to continued poverty reduction and inclusive growth in the near future. Relying on data from the Household Sample Survey, the paper focuses on the dynamics of the main sources of livelihood of households – labor income, pensions as well as direct transfers and indirect subsidies – as key contributors to the evolution of overall disposable incomes of households, in order to understand what lay behind the evolution of poverty and shared prosperity of the 2003-2015 period. The paper also complements the cross-sectional, but more detailed, look at the contribution of the Belarus fiscal system to poverty and inequality provided by the Commitment to Equity analysis (Bornukova, Shymanovich and Chubrik, 2017), by providing a temporal dimension. The evolution of poverty and shared prosperity in Belarus should be viewed in the context of rapid economic growth during 2000-2008, followed by a period of slower growth, and increased volatility, ending in recession.Growth in wages and pensions were the main drivers of shared prosperity in Belarus, particularly prior to the financial crisis, with an increasing importance of social transfers in the second half of the period.The recent deterioration of the external environment has shone a light on the degree of vulnerability of low income households and raises questions about the sustainability of past shared prosperity gains.While the economy faces multiple challenges, this paper highlights two challenges to inclusive growth, the prominence of which is being accentuated by the recent recession – the impact of population ageing, and the need to provide an adequate safety net in the context of ongoing reforms, notably in the utilities sector.Meanwhile, ongoing reforms in the utilities sector will diminish the support to households in the form of subsidized utilities prices, which, absent compensatory measures, can have a notable welfare impact

Moldova Poverty and Shared Prosperity Update 2018

This note provides an update of recent poverty and shared prosperity dynamics, and some of the underlying drivers, as well as introducing the new international poverty thresholds that are currently in use. The purpose of the update is to take advantage of the release of Household Budget Survey (HBS) data for the 2016 survey round. The previous poverty and shared prosperity update, release in 2017, updated poverty and shared prosperity trends up to 2015. The first section discusses the overall progress poverty reduction and shared prosperity up to 2016 – the latest available household budget survey data. Notably, the poverty dynamics are presented, for the first time, using PPP values based on the 2011 ICP exercise, and using the newly adopted Income Class poverty thresholds of $3.3/day and$5.5/day. For the purposes of this note, we focus on the $5.5/day threshold, but the section also presents a comparative analysis of poverty dynamics based on old and new thresholds. Because this is the first time when internationally-comparable poverty and shared prosperity statistics for Moldova are presented based on the ICP 2011 PPP conversion factors, and relying on newly defined income-group based thresholds, the introduction has a brief discussion of the reasons behind the change in the World Bank’s poverty methodology used for global poverty monitoring, and the implications of this change for poverty trends over time and for the absolute levels of poverty reported in Moldova. Section 2 discussed the major drivers of shared prosperity during the 2011-2016 period. Section 3 examines the profile of poor and vulnerable populations, their asset endowments, and changes in this profile in recent years

Regional Trends of Population Aging in Russia

Do regions with higher working age populations grow faster? This paper examines this question using data from Russian regions and finds evidence that demographic trends influence regional growth convergence. In other words, keeping other factors constant, poorer regions grow faster than richer regions, and some of the growth convergence is explained by demographic changes: faster growth in poor regions in the past was related in part to more favorable demographic trends. This finding has important consequences for Russia. If the demographic trends in poorer regions worsen in the future, this could dampen economic convergence. Unless there are significant increases in labor productivity or additions to the labor force through migration, growth in Russian regions will moderate as the Russian population shrinks and ages in the coming decades

A Commitment to Equity Analysis

The paper employs the Commitment to Equity framework to present a first attempt at a comprehensive fiscal incidence analysis for Ukraine, encompassing the revenue and expenditures components of the fiscal system, including direct and indirect taxes, as well as direct, indirect, and in-kind transfers. The fiscal system in Ukraine has high redistribution effects, decreasing the Gini inequality index by 21 percentage points, and the official measure of poverty incidence by 27.6 percentage points (considering all fiscal interventions including in-kind transfers). As in many other countries in the region, pensions are the main contributor to the redistribution effect of fiscal policy. However, Ukraine stands out due to the relatively high equalizing effect of direct transfers. Fiscal policy in Ukraine is pro-poor, with the lowest income decile benefiting the most. Overall, 60 percent of the population of Ukraine are net recipients from the fiscal system, the main categories of recipients being households with two or more children, single-parent households, and retirees

A Tool for Distributional Analysis in the Russian Federation

The purpose of this paper is to introduce applications of RUSMOD -- a microsimulation model for fiscal incidence analysis in the Russian Federation. RUSMOD combines household survey micro-data and fiscal policy rules to simulate the Russian tax-benefit system: the size and distribution of taxes collected and benefits paid, and the impact of the system on different population groups. Microsimulation models, such as RUSMOD, are habitually used in developed countries, and can be versatile budgetary policy tools. Using this model, the current tax-benefit system in Russia is examined. The impact of the system is measured across the income distribution, age groups, family types, localities, as well as across time. One of the applications of RUSMOD this paper aims to assess is the role of the tax-benefit system in explaining the incidence of informal employment in Russia. The paper investigates whether the existing system creates disincentives for formalization in terms of reducing disposable incomes and increasing poverty and inequality, and whether a hypothetical tax reform would be able to reduce the opportunity costs of formalization for informal workers, improve distributional outcomes, and increase fiscal revenues