Highlights:

Special chapter 3 of Djibouti’s Economic Monitor examines the redistributive effects of the country’s fiscal system, analyzing how different taxes and transfers affect poverty and inequality.

Key findings:

Djibouti's fiscal system has a positive effect on equality, reducing inequality by 8 Gini points in 2017. However, it exerts upward pressure on poverty, increasing it by 4 percentage points in 2017. The system's impact on poverty and inequality varies across different tax interventions and social spending programs.

Direct taxes are progressive, increasing with income, while VAT is regressive, impacting low-income earners more. The National Family Solidarity Program (PNSF) is progressive, benefiting mainly the poorest households. However, kerosene subsidies mainly benefit wealthier households, who consume more kerosene.

Education spending becomes less progressive at higher levels of education, reflecting inequitable access to higher education opportunities. Health spending has a positive impact on reducing inequality, particularly through the Social Health Assistance Program (PASS).

Simulations show that redirecting kerosene subsidies to direct cash transfers, such as those under the PNSF, could achieve a more significant reduction in poverty and inequality. The expansion of the PNSF and PASS programs in 2022 could lead to a significant reduction in extreme poverty.

Overall, the analysis suggests that Djibouti's fiscal system can be made more effective in reducing poverty and inequality by targeting subsidies and social protection programs more efficiently, investing in social protection and human capital, and expanding pro-poor social programs.

[Disclaimer: Text generated by GPT@JRC using Generative AI technology and checked by the KC-FNS Secretariat- For comprehensive information and context, please refer to the full document.]