Being poor often means being hurt twice: Kenny and Sandefur have a CGD commentary replicating CEQ analysis and showing that tax-transfer systems reduce inequality in the rich world, but often exacerbate poverty in the poorest countries. In 4 of the 5 Sub-Saharan African countries where CEQ data is available, the net effect of taxes and transfers was an increase the number of people living below the absolute poverty line. In Tanzania, poverty is nearly 20 percent higher due to taxes and transfers.
We know that fiscal policy can be harnessed to reduce inequality in low- and middle-income countries, but until now, we knew less about its ability to reduce poverty. Our recent volume looks at the revenue and spending of governments across eight low and middle income countries (Armenia, Ethiopia, Georgia, Indonesia, Jordan, Russia, South Africa and Sri Lanka), and it reveals that fiscal systems, while nearly always reducing inequality, can often worsen poverty.
Some countries are blessed with natural resources, others are cursed. It’s been said that all the blessed ones are alike, they put the resources to good use, improving the people’s welfare in a sustainable manner. And for the cursed? More often than not, they struggle with political violence, especially when ethnic or religious fragmentation and weak institutions are a concern. Not surprisingly, it was Venezuela’s former Development Minister and OPEC Founder Perez Alfonso who christened oil the “Devil’s excrement.”
If natural resources could be the source of such evil, are there ways of “exorcising” them? Perhaps policymakers could try to prevent or resolve resource-related conflicts by sharing natural resource wealth with opposition groups or directly with the people. Would such a counter spell work?