In international context, Jordan’s fiscal policy performs poorly in terms of reducing poverty and inequality. In 2018, Jordan’s fiscal policy reduced inequality by 2.6 points in monetary terms (25<sup>th</sup> out of 47) and 5.8 points including health and education (28<sup>th</sup> ). In 2010, the reductions were 1.6 points (35<sup>th</sup> ) and 2.3 points (3<sup>rd</sup> worst), although as we mentioned the 2010 and 2018 results are not comparable for a variety of technical reasons. Jordan’s poverty reduction impact (1.5 points) is modest in comparison with countries that achieve poverty reduction through their fiscal systems, although this discounts that in many countries the fiscal system actually increases poverty.

Over the last few years Jordan has experienced sluggish economic growth and weak fiscal performance, by the end of December 2019, owing primarily to weak domestic resource mobilisation, the debt-to-GDP ratio including arrears rose to reach 99 percent of GDP (WB, 2020). Jordan’s revenue and spending as a percentage of GDP is relatively high at the aggregate level compared to other countries in the CEQ database. However, the composition of both has historically been less progressive than elsewhere. Fiscal reforms of the last decade have been positive – a move away from food and fuel subsidies and an increase in poverty-targeted direct transfers – but remain far from the international best practice. A key driver of these results is Jordan’s reliance on less progressive sources of revenue and forms of expenditure. Personal income tax (PIT) and targeted direct cash transfers such as NAF or the new Takaful programme perform much better in terms of progressivity than indirect taxes and subsidies, respectively. However, because direct taxes and transfers represent relatively small contributions to total revenues and expenditures, they have a limited impact on poverty and inequality reduction. For example, revenue from personal income taxes are about 9 percent of revenue from GST. Almost three times as much is spent on regressive electricity and water subsidies than in progressive direct transfers, and even within direct transfers, 75 percent more is spent on the bread subsidy cash compensation which is much less targeted to poorer households than NAF and Takaful. Inequality only falls 1.7 points after direct taxes and transfers and only a further 0.9 point once indirect taxes and transfers are included. As a consequence, the fiscal system falls short of its potential equalising and poverty reducing impact.

The COVID-19 crisis is expected to pose a significant risk to the near-term growth prospect and to poverty and inequality (Refaqat _et al_ . 2019). In this context, the need for fiscal reforms to raise additional revenues without affecting the poor and vulnerable is more pressing. We discuss potential reform scenarios that could help achieve such objectives. These include the expansion of direct cash transfers through Takaful (a policy being currently implemented), the elimination of the bread compensation scheme, a reform of the electricity residential tariff system and the elimination of the exceptions under the GST. Taken together, we estimate that the fiscal system could become more progressive while generating significant fiscal savings.

We begin by presenting the main fiscal instruments and their budgetary allocations. Section 3 describes the methodology by which we allocate fiscal instruments to household data. Section 4 presents the distributional assessment of the current fiscal system in Jordan; Section 5 puts the results in international context; section 6 presents some potential reform scenarios; section 7 concludes.

# 2. Fiscal Instruments

This section provides an overview of Jordan’s taxes and expenditures in 2018. Although 2019 data are available, the household survey used to determine which households pay different taxes and benefit