IMPACT OF TAXES AND TRANSFERS

Enami, Lustig, Aranda, No. 25, November 2016
Figure 5. A Pro-Poor Transfer: Lorenz Curve of Pre-Transfer Income, Concentration Curve of
an Equalizing Transfer and Lorenz Curve of Post-Transfer Income
1.2.1. Fiscal Systems: Comparing Two Single-Transfer Systems of Different Sizes
So far, we have shown that in a system with only one transfer and no reranking, a progressive
transfer is equalizing. Does this mean that the more progressive a transfer is (that is, the more
progressive or disproportional), the more equalizing it is? Table 5 shows that this need not be
the case: transfer A is not only more progressive but also more pro-poor than A’ yet the posttransfer
distribution is considerably more equal with transfer A than with transfer A’.
Table 2-5. Redistributive Effect and the Progressivity of Transfers
Population
Gross Income
Transfer A
Net Income under A Transfer A’ Net Income under A’
Income Distribution Transfer Distribution Income Distribution Transfer Distribution Income Distribution
1 21 21% 50 98% 71 0.47 1 100% 22 22%
2 80 79% 1 2% 81 0.53 0 0% 80 78%
Total 101 100% 51 100% 152 1 1 100% 102 100%
As with taxes, the redistributive effect of a transfer depends not only on its progressivity but
also on its relative size. That is, under no reranking,
22