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The Incidence of Taxes and Spending in Sri Lanka
(2023-07-11) Arunatilake, Nisha; Inchauste, Gabriela; Jayawardena, Priyanka; Lustig, Nora
This report seeks to answer (1) how much redistribution and poverty reduction is accomplished through taxes, social transfers and subsidies, (2) how progressive are revenue collection and government spending, and (3) what is the individual impact taxes and transfer policies have on inequality and poverty, given the fiscal resources used. The main contribution of this analysis is to provide systematic empirical evidence on the progressivity of the fiscal interventions. This study is a first comprehensive examination of Sri Lanka’s fiscal instruments and their ability to redistribute income and reduce poverty. The analysis finds that taxes and social spending were overall redistributive and poverty reducing in Sri Lanka in 2012/13, the latest year for which a household survey was available at the time of writing this chapter. Given the relatively low level of revenue and the limited fiscal space, overall social spending was small, leading to very limited impacts.