Assessing the Pro-Poorness of Government Fiscal Policy in Thailand Hyun H. Son International Poverty Centre

Fiscal Policy Growth Poverty Distribution General Framework

Fiscal Policy: Revenue

Fiscal Policy: Expenditure Fiscal Policy Government Expenditure Infrastructur e Welfare programs Economic services Growth Distribution

Introduction This paper examines the impact of fiscal policy on poverty through changes in distribution. This does not take into account the impact of fiscal policy on growth. This study captures only first order effects.

Poverty Measures : Headcount ratio : Poverty gap : Severity of poverty A class of additive separable poverty measures:

Growth Elasticity of Poverty - Growth elasticity of poverty: the elasticity of  with respect to  when L(p) remains constant. - Growth elasticity of poverty for FGT measures: which is always negative. < 0

Growth Elasticity of Income Components - x is the disposable income and g i (x) is the ith income received by an individual with disposable income x. - For FGT, the ith income component elasticity is defined as - if all income components grow at the same rate of 1%, then the total poverty will change by

Pro-poor Index of the Income Components = Income effect + Distribution effect -If the distribution effect is negative (positive), the redistribution effect of the ith income component reduces (increases) poverty, implying that the ith income component is pro-poor (anti-poor) - Pro-Poor Index for ith income component is:

Indirect Taxes and Subsidies - Indirect taxes and subsidies have direct impacts on prices. - Elasticity of poverty with respect to p i is

Pro-Poor Index for Prices - Elasticity of poverty with respect to p i can be decomposed into = Income effect + Inequality effect -Inequality effect: whether an increase in p i hurts the poor proportionally more than the non-poor. -If inequality effect > 0, the increase in p i hurts the poor proportionally more than the non-poor

Pro-Poor Index for Prices Pro-Poor Index for price is defined as - If the index is greater (less) than 1, an increase in p i hurts the poor more (less) than the non-poor. - If the index is greater than 1, then the ith commodity should be subsidized so that the poor benefit more relative to the non-poor. - If the index is less than 1, taxing the ith commodity will hurt the rich more than the poor. -The index can be used as a tool to improve the tax or subsidy schemes to maximize poverty reduction.

Fiscal Structure in Thailand -Thailand’s fiscal system is highly centralized. -Centralized fiscal system contributes to the unequal distribution of public services, e.g. public infrastructure, education, health, etc.

Different types of government revenue Distribution of Revenue (%) Taxes on income, profits, & capital gains29.34 Taxes on property0.70 Taxes on goods & services48.10 General taxes on goods & services26.88 (including value-added taxes & sales taxes) Excises20.81 Taxes on international trade & transactions9.02 Customs & other import duties9.02 Taxes on exports0.00 Other taxes0.44 Total Tax revenue87.61 Grants from foreign governments0.61 Other revenue11.78 Total Non-tax revenue12.39 Total revenue100.00

Expenditure by Function Distribution of expenditure General public services10.2 Defense affairs & services8.5 Public order and safety5.1 Housing and community amenities3.9 Health affairs & services6.8 Education affairs & services19.0 Social security & welfare3.2 Recreation, culture and religion1.3 Agriculture, forestry, & fishery affairs5.8 Fuel & energy0.2 Mining, manufacturing, & construction0.4 Transport & communication13.1 Other economic services22.5 Total Government expenditure100.0

Income components Percent Share Poverty gap ratio Poverty ElasticityPro-Poor index Wage and salary Entrepreneurial income Farm income Land rent from farming Interest and dividends Remittances Pensions and annuities Home produced food Owner occupied home Food received free Rent received free Total money income Total in-kind income Taxes Income tax House and land tax Total current disposable income

Pro-Poor Index for income components (Poverty Gap Ratio)

Pro-Poor index for prices (poverty gap ratio)