# **6.2 Progressivity**

**The** **_Kakwani_ Index is a summary statistic of progressivity.** For taxes, it is calculated by subtracting the concentration coefficient of the tax from the Gini coefficient of a reference income (in this case Market Income);<sup>71</sup> for transfers, the index is calculated by subtracting the Gini coefficient from the concentration coefficient of the transfer. A value greater than zero represents a progressive tax or transfer, while a value below zero represents a regressive tax or transfer. The minimum and maximum values of the Kakwani Index depend on the size of the Gini coefficient. With a Gini coefficient at Market income of 35.1, the maximum value of the Kakwani is 64.9 for taxes (100-35.1), and 135.1 for transfers (35.1+100). The values of the Kakwani Index for transfers (Figure 6-3) are therefore not comparable with those of taxes (Figure 6-4).

**Most fiscal instruments in the West Bank and Gaza are progressive at Market income except for fuel subsidies (direct and indirect effects) and pension income. The direct transfers and in-kind benefits from health and education are the most progressive instruments in the West Bank and Gaza.** The CTP and near-cash transfers score the highest on the Kakwani index (at 100.3 and 73.0, respectively). The inkind health and education benefits are substantially less progressive than the direct transfers – which is unsurprising given that the latter directly target the poor, particularly through the CTP program.<sup>72</sup> Hospital and primary healthcare both score 47.9 on the Kakwani Index, while basic and secondary education score 45.3 and 39.0 respectively.

**Fuel subsidies and pension income are regressive (they have a negative score on the Kakwani Index).** This is not unusual in either case since fuel subsidies generally benefit the wealthy who spend a larger share of their consumption on fuel, while Pension Income is mostly awarded to public sector employees.<sup>73</sup> This means that the rich are capturing a larger share of these transfers relative to their income shares than the poor; hence, these instruments represent an inefficient means of supporting the poor. While Pension Income is of course not designed solely to support the poor, it is nonetheless important to note that the inclusion of the pension system results in a large redistribution of income from pension contributors to pension recipients.

> 71 The concentration coefficient is a summary statistic of the concentration shares and is thus a measure of the absolute distribution of a tax or transfer. It is measured similarly to the Gini coefficient, and a positive concentration coefficient indicates that the rich pay a greater share of a tax (receive a greater share of a benefit) than their share of the population, while a negative concentration coefficient indicates the opposite.

> 72 Even though the CTP program could not be identified in the PECS, it is likely that the program contributes largely to the aggregate results found in “direct transfers”, since the CTP represents about 63 percent of Ministry of Social Development budget.

> 73 According to the PER (World Bank, 2016), as of September 2014, only 2.2 percent of contributors were from the private sector (3,350 out of 154,986 total contributors).

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