The impact of taxes and social spending on inequality and poverty in El Salvador

Produced by: 
Tulane University
Available from: 
November 2016
Paper author(s): 
Margarita Beneke
Nora Lustig
Jose Andres Oliva
Topic: 
Poverty - Inequality - Aid Effectiveness
Year: 
2017

We conducted a fiscal impact study to estimate the effect of taxes, social spending, and subsidies on inequality and poverty in El Salvador, using the methodology of the Commitment to Equity project. Taxes are progressive, but given their volume, their impact is limited. Direct transfers are concentrated on poor households, but their budget is small so their effect is limited; a significant portion of the subsidies goes to households in the upper income deciles, so although their budget is greater, their impact is low. The component that has the greatest effect on inequality is spending on education and health. Therefore, the impact of fiscal policy is limited and low when compared with other countries with a similar level of per capita income. There is room for improvement using current resources.

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