This paper innovates in a few areas. First, we are, to the best of our knowledge, the first paper to explore the impacts of the fiscal system on vulnerable populations both at the household and individual levels for the case of Brazil. We conduct an analysis of the impacts on poverty and income inequality across demographic groups considering particularly the presence of children and elderly in households’ compositions, and also at the individual level. Such categorizations are important given the long-standing evidence of high poverty rates among children and low poverty rates among elderly in Brazil (World Bank, 2018, World Bank, 2022b), and recent literature finding that households with children were more likely to have been affected by the COVID-19-induced economic crisis (World Bank, 2021b, CBPP, 2022). Second, we provide an update to earlier work (Higgins and Pereira, 2014) on fiscal incidence analysis for Brazil that reflected the country’s situation in 2008/2009. An update is warranted for several reasons. For instance, the personal income tax structure has changed. In 2008, there were only three tax brackets, with different tax rates: 0%, 15% and 27.5%. There is also now an additional bracket targeting those with lower income levels, whose tax rate is 7.5%, and another intermediate bracket before the maximum, at 22.5%. Also, in 2014 a major economic crisis hit Brazil leaving scarring effects among households in the bottom of the distribution (World Bank 2022b). Moreover, the number of beneficiary families in the largest conditional cash transfer program, the Bolsa Família, increased by 26% in the period 2008-2019, while resident population increased by only 10% (Brazil, 2022c). All these changes represent major modifications in the fiscal incidence landscape. Third, the paper incorporates an analysis of Brazilian indirect taxes under the same cross-country and time comparable methodology.

Our results indicate that the Brazilian fiscal policies are typically poverty- and inequality-reducing, but with a large heterogeneity in the effectiveness of fiscal tools. We document that the fiscal system in 2019 reduces extreme poverty by 5.9 percentage points (p.p.) and moderate poverty by 0.6 percentage points. 1F<sup>2</sup> Our results also indicate that indirect taxes are responsible for a large increase (6.1 p.p.) in poverty, but the poverty reduction effects of rural pensions, BPC, Abono Salarial and Bolsa Familia more than compensate that. Despite the modest overall reduction in moderate poverty, we show a substantial decline in both the poverty gap (4.7 p.p.) and the squared poverty gap (5.9 p.p.) in terms of moderate poverty when we shift from market income plus pensions (MIPP) to consumable income. Considering the extreme poverty line, fiscal policies reduce the poverty gap by two-thirds (6.9 p.p.) and the squared poverty gap to a fifth of its original value (a 7.1 p.p. decrease). This means that even though the fiscal system does not reduce much the moderate poverty headcount ratio, it does alleviate the situation of the poor. Notably, out of 40 countries with poverty rates available in the CEQ database, only 11 were reducing moderate poverty from MIPP to consumable income. 2F<sup>3</sup> We also show that income inequality, measured by the Gini index, is reduced by 6.4 points when we compare the pre-fiscal income concept (MIPP) with consumable income. We additionally show that such

> 2 The threshold for moderate poverty is half of the 2019 minimum wage (BRL 499), while that for extreme poverty is the one that defined eligibility to the Bolsa Família program in 2019 (BRL 178), respectively. In the section reserved for international comparisons, we use a different poverty line because we want to ensure that our results are comparable with CEQ assessments for other countries.

> 3 For international comparisons, moderate poverty is measured at US$5.50 per day in 2011 purchasing parity power (2011 PPP). While here we define moderate poverty at R$550 per month (equivalent to US$7.05 per day in 2011 PPP), the CEQ database does not have results for other poverty lines. It is worth noting that the World Bank updated its poverty lines to 2017 PPP and that the current line recommended to upper middle-income countries is US$6.85 per day. This last is equivalent to R$521 per month at 2019 prices, very close to the half the national minimum wage line (R$550) used as the main reference in this paper.

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