The distributional impact of the Nicaraguan fiscal equity law

Type Report
Title The distributional impact of the Nicaraguan fiscal equity law
Publication (Day/Month/Year) 2003
The recent passage of the Fiscal Equity Law significantly modifies the Nicaraguan tax system. In this work, the distributional impact of these reforms will be evaluated, applying the “shifting assumptions” methodology to information about spending and income obtained from the 2001 Living Standards Measurement Survey. Both consumption and income adjusted to demographic factors are used as alternative welfare indicators. Standard shifting assumptions found in corresponding literature are applied, and the distributional impact of each reform measure and the general tax system are evaluated in relation to concentration and progressivity curves and indices. It is concluded that the tax reform implemented through the Fiscal Equity Law is slightly progressive in distributional terms. If its implementation leads to an effective increase in tax revenues, distribution in Nicaragua will become less unequal than it is currently. In addition, the Law’s measures promote a general horizontal equity.

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