Fiscal Policy and Child Poverty in Ethiopia

Abstract

This study investigates the effects of public transfers and taxes on the wellbeing of children in Ethiopia. It applies the Commitment to Equity for Children (CEQ4C) methodology to examine the burdens of taxation and the benefits from government transfers and spending, and their differential wellbeing impacts on children. The study integrates data from Ethiopia Socioeconomics Survey 2018/19, which also collected data on taxes and transfers, with administrative data. Measuring its distribution by child monetary and multidimensional wellbeing, the study finds, on average, a progressive, poverty-reducing and equalizing fiscal system. However, there are important differences in the distribution of some of its elements. Indirect taxes, comprising of VAT and excise taxes, are regressive. Similarly, primary education spending, the largest of in-kind transfers, is only progressive in urban areas. With regards to poverty and inequality, the fiscal system reduced the monetary child poverty headcount by 21% and the poverty gap by 33%. The effect is stronger for girls and children in rural areas than for boys and children in urban areas, therefore reducing inequalities in poverty rates. However, this is only the case when in-kind transfers for education and health are considered. Without the inclusion of in-kind transfers, the study finds that the fiscal system is not well calibrated to reduce poverty. This highlights the essential role of public services, not only in delivering fundamental child rights, but also in reducing poverty amongst children.