Bringing taxation into social protection analysis and planning

Abstract

Social protection and tax policy are commonly examined separately, yet they are strongly linked. Tax revenue levels and ‘mix’ matter to the resources available for social protection financing and to their sustainability over time; they also matter to the net incidence and distributional impact of fiscal policy. If poverty and inequality reduction are central public policy concerns, then a more careful consideration of taxes and transfers and the ways in which they operate jointly is warranted. For example, expanding income concepts beyond market and disposable income definitions that take direct taxes and transfers into account is especially important if tax-transfer distributional analysis is to be meaningful for low-income and medium-income countries, where there has been a significant expansion in social protection over the last two decades. This paper aims to contribute to efforts to include tax considerations in social protection analysis and design by discussing the key methodological issues in carrying out joint distributional analysis, reviewing the evidence on the incidence and distributional impact of taxes and transfers and discussing alternative tax revenue sources and their implications for social protection financing and sustainability