1. Explain two economic reasons for government taxation for poverty alleviation

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Expert Solution

The fact that particular fiscal measures can be reversed underlines the value of taking a holistic view of both taxation and spending rather than following a fragmented analysis. Effective regressive taxes (such as VAT) when combined with generous well-targeted transfers will result in an equalizing net fiscal program.

To assess the impact of the fiscal system on people's living standards, it is vital to measure the impact of taxation and expenditure not only on inequality but also on poverty. For example, efficiently structured regressive taxes will increase poverty even when paired with progressive transfers, because the transfers are not large enough to compensate the poor.

Policymakers should benefit from our volume one basic lesson: governments should design their tax and transfer programs so that poor people's incomes (or consumption) after taxes and transfers are not lower than their incomes (or consumption) before fiscal intervention. In short, fiscal policy would help the least well-off boost their health, rather than driving them into poverty or worsening their deprivation.

Rahul Sunny answered 1 year ago

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