Egyptian fiscal policy (in 2015) is nearly unique in that it has positive impacts on both inequality reduction _and_ poverty reduction without an emphasis on targeted expenditures or revenue collections.<sup>46</sup> In other words, households at any rank in the income distribution can expect to pay some direct and indirect taxes, but they can also expect to receive an even greater amount (in absolute magnitude) in cash or nearcash transfers. Figure 12 shows the net cash position of poor, vulnerable, middle-class, and rich households after direct transfers and subsidies are received and direct and indirect taxes are paid. While the pilot direct cash transfer programs (Takaful and Karama) are clearly targeted to poor and vulnerable households, the other expenditures (the food credit and energy subsidies) are universally available. The estimated net position of households is a result reflective of the GoE’s documented gap between expenditures and revenues. This approach is not fiscally sustainable in the long run. In the short run, the GoE has financed it through the emission of bonds, typically held domestically.

In other fiscal settings, a lack of emphasis on targeted expenditures and revenue collections can mean that poor and vulnerable households do not capture the most valuable benefits (for example, because they buy few subsidized energy products directly) while remaining liable for some portion of the most significant tax instruments (or example, VAT). In such a setting, fiscal impoverishment, or the extent to which poor and vulnerable households suffer _net losses_ from the fiscal system, can be quite high.<sup>47</sup> Figure 13 shows the extent of fiscal impoverishment (at US$1.90 per day [2011 PPP] international poverty line) in a set of 11 low- and middle-income African countries between the years 2010 and 2015 and Egypt in 2015: only South Africa and Namibia avoid egregious fiscal impoverishment among the populations at large. In Egypt, meanwhile, fiscal impoverishment is essentially zero.<sup>48</sup> Egypt’s fiscal profile—nontargeted expenditures that create cash or near-cash benefits that are larger (in absolute magnitude) for all individuals than the direct and indirect taxes collected from the same individuals—is rare. In other country and fiscal contexts, such a mismatch would be fiscally unsustainable. In Egypt (in 2015), however, the revenue shortfall was approximately 10 percent of GDP. The funding gap in FY15, as well in other years has been typically funded through government bonds.

> 46 See Enami, Lustig, and Tafqiri (2017) for the Iranian example of the same poverty‐ and inequality‐reduction impacts.

> 47 The measure of fiscal impoverishment (FI) was first proposed by Higgins and Lustig (2016). The FI headcount measures the proportion (out of the entire population) of individuals who were prefiscal poor and became poorer or prefiscal non‐poor and become poor as a result of taxes and transfers. The FI consumable income poor headcount measures the proportion (out of the entire post‐fiscal poor population of individuals who were prefiscal poor and became poorer or prefiscal non‐poor and become poor as a result of taxes and transfers).

> 48Fiscal impoverishment–headcount ratio and Fiscal Impoverishment–consumable income poor headcount ratio are both zero

> (0.0 percent) in Egypt using the 1.90 US$ per day (2011 PPP) international poverty line or Egypt’s national poverty line; and are 0.0 and 2.0 percent (respectively) in Egypt using the $PPP 3.20 per day (2011) international poverty line.

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