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Monday 26 April 2021

Fiscal Policy in Tajikistan Contributes to Poverty


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DUSHANBE (Asia-Plus) — To quantify the effects of government taxation and social spending on measures of poverty and inequality in Tajikistan, Tulane University researchers used the Commitment to Equity (CEQ) Assessment method with data from a survey called Listening to Tajikistan (2015) and fiscal data from administrative sources over the same period.

The Effects of Fiscal Policy on Poverty and Inequality in Tajikistan (PDF)
The design of fiscal policies can either improve or worsen poverty and inequality
(Click to download)

The Effects of Fiscal Policy on Poverty and Inequality in Tajikistan, in particular, notes that fiscal policy in Tajikistan contributes to an increase in the poverty rate (at the $US PPP 3.20 per person per day poverty line) by 5.12 percentage points. The results reportedly also show that the fiscal system achieves some modest redistribution despite a relatively small social expenditure budget. Although some transfers are well-targeted in Tajikistan, direct and indirect taxes fall heavily on poorer households and offset the poverty-reducing effect of public expenditures.

The size of the main targeted social assistance program is insufficient to either remarkably reduce poverty or compensate for tax contributions among the poorest households, according to the survey. The findings suggest that social expenditures intended for the poor do not in practice reach their targets, and expenditures on universal services such as education and health care are spread evenly across the population.

The strongest options for greater redistribution to support poor and vulnerable households include: 1) improved targeting of public expenditures; 2) greater progressivity by redesigning tax policy to collect a larger share of revenue from higher income people; and 3) larger transfer budgets for the best targeted expenditures such as Targeted Social Assistance (TSA). The survey notes that Tajikistan’s dependence on remittances and official external financing makes it highly vulnerable to external shocks.

High levels of government expenditure, combined with exposure to external shocks, pose a significant challenge in simultaneously maintaining macroeconomic stability, budget sustainability, and protections for the poor and vulnerable.

Poverty trends in Tajikistan reportedly have a strong seasonal component, driven by the relatively harsh conditions and the cyclical nature of economic activity in the country. The seasonality of poverty in Tajikistan highlights the importance of developing consumption smoothing mechanisms such as saving and loan products, the survey says.

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