We show that the receipt of in-kind benefits, primarily education, is what drives which groups receive the largest net benefits from the fiscal system. This echoes the finding in Rodriguez and Wai-Poi (2021) that much of the progressivity of the fiscal system in Jordan comes from these transfers. Our results also show that the fiscal system in Jordan is reducing within-group inequalities, which represent over 80 percent of total inequality for both fiscal and care groups. Most of the reduction happens between market and disposable income, that is, when direct taxes and transfers are added to the fiscal system. The fiscal system has very little impact on inequalities across groups, although they are very small to begin with.

The next section briefly reviews recent relevant literature. Section III presents the methodology. Section IV shows the results for fiscal and care household types and Section V concludes.

# II. Literature review

Fiscal incidence studies have been conducted in many countries around the world, including various countries in the Middle East and North Africa (MENA) region,<sup>4</sup> following a recognised methodology largely used in developing countries known as the Commitment to Equity (CEQ).<sup>5</sup> This approach uses standard incidence analysis for each tax and transfer, where these fiscal instruments are allocated to households based on the information in national representative household surveys. This study is based on and extends the most recent fiscal incidence study for Jordan (Rodriguez and Wai-Poi 2021).<sup>6</sup> It assesses the incidence of Jordan’s main taxes and transfers as of 2018 using data from that year’s main household survey, the Household Income and Expenditure survey (HEIS). The main finding is that Jordan’s system of taxes and transfers is only modestly progressive, barely narrowing the pre-fiscal disparities. Comparing inequality based on households’ market incomes with that based on their post-fiscal incomes (after paying income and consumption taxes as well as receiving government transfers and subsidized services), the authors find a fall of 6 points in the Gini Index, from 35.1 to 29.5 points. When considering only monetary taxes and benefits (that is, excluding non-cash education and health services), inequality falls by only 2.6 points. Out of 47 countries for which data is available, the degree of inequality reduction from fiscal policy that Jordan achieves is ranked in the bottom half, being 25th from top considering only cash taxes and benefits and 28th if also including education and health.

This work, like most other fiscal incidence analyses, focuses on the impact of the fiscal system across households ranked by their market or pre-fiscal incomes. In part, this choice is implicit in the CEQ fiscal incidence methodology because its main stated aims focus on income inequality and poverty. These aims are: i) to assess the degree of income redistribution and poverty reduction accomplished through the fiscal system; ii) to quantify how equalising and pro-poor are specific fiscal instruments; and iii) to assess the effectiveness of different fiscal instruments in reducing inequality and poverty (see Lustig 2018).<sup>7</sup> The interest in vertical inequality is also reflected in the introduction of indicator 10.4.2—the difference in pre-fiscal and post-fiscal income inequality (measured by the Gini coefficient)—to the measurement of SDG 10 (reduce inequality within and between countries) in March 2020.<sup>8</sup>

> 4 Including the Arab Republic of Egypt, the Islamic Republic of Iran, Morocco, Tunisia and Jordan.

> 5 See <u>https://commitmentoequity.org/</u>

> 6 An earlier fiscal assessment was also conducted for 2010 (A. Alam, Inchauste, and Serajuddin 2017) using the same methodology. See Rodriguez and Wai-Poi (2021) for a description of the changes in both studies.

> 7 A fourth aim refers to the assessment of fiscal reforms.

> 8 Following the proposal submitted by Oxfam, CEQ, and the World Bank.