Almost 20 percent of Cambodians experience fiscal impoverishment. This means that: 1) some individuals whose pre-fiscal incomes were below the poverty line were net contributors to the fiscal system such that this reduced their net cash position, and 2) some individuals whose pre-fiscal incomes were above the poverty line were net contributors to the fiscal system such that their post-fiscal incomes ( _consumable income_ ) was below the poverty line. The average reduction in income as a proportion of market income among Cambodians fiscally impoverished was 3.7 percent.

Conversely, some of the poor gained through the fiscal system. Fiscal gains to the poor (FGP) traces _prefiscal_ poor households to determine how many experienced an income increase following fiscal policy execution. Fiscal policy made only about 2 percent of pre-fiscal poor better off; that is, net beneficiaries of the Cambodian fiscal system. Among pre-fiscal poor beneficiaries, the average increase in market income was 10.6%.

Table 5: Fiscal impoverishment and fiscal gains to the poor

|Market income|Change in poverty|Fiscally|Fiscal|Fiscally better-|
|---|---|---|---|---|
|poverty|headcount|impoverished (%|impoverished (%|off (% of market|
|headcount|(percentage points)|of population)|of consumable|income poor)|
|(%)|||incomepoor)||
|17.7|2.1|19.5|98.4|1.9|

Source: Authors’ calculations based on CSES 2019/20 and fiscal data.

# **Contribution of Individual Interventions to Poverty and Inequality Reduction**

In addition to overall effects of fiscal policy, policy making must assess the contribution of each fiscal intervention to poverty and inequality. We can analyze an intervention in terms of its progressivity and marginal contribution to poverty and inequality. To do this, we use the Kakwani index (Kakwani 1977) to analyze whether a tax or transfer is progressive.<sup>18</sup> A Kakwani index for taxes will be positive (negative) if a tax is globally progressive (regressive), and a Kakwani index is positive if a transfer is progressive in relative terms. A tax is considered progressive if the burden proportionally increases with income. For each tax, the Kakwani index is defined as the difference between the concentration coefficient of the tax and the Gini coefficient of _market income_ . Similarly, a transfer is considered progressive if the entitlement proportionally decreases with income. In the case of transfers, the Kakwani index is the difference between the Gini coefficient of _market income_ and the concentration coefficient of the transfer.

To analyze whether a tax or transfer is equalizing, we use the marginal contribution to income inequality measured by the Gini coefficient. The marginal contribution measures the additional change in inequality due to a tax or transfer. The marginal contribution is the difference between the Gini without the fiscal intervention and the Gini coefficient of all income components combined. An intervention is equalizing when the marginal contribution is positive. When there is only a single intervention in the fiscal system, the Kakwani index would have been sufficient to determine whether the intervention is unambiguously equalizing. When there are multiple fiscal interventions, the relationship between inequality outcome and

> 18 Progressivity can also be assessed using Lorenz curves and concentration curves.

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