a transition from one income group to another—the share of individuals found in the diagonal is lower than for disposable income.

The net effect of direct transfers and taxes is to push more individuals down to a lower income group than are raised to a higher income group. Direct interventions push more women (3 percent) than men (2 percent) down to a lower income group, and many more women then fall below the absolute poverty line (birr 5,050).

Overall, fiscal policy moves about one in five individuals (20.8 percent for men, 18.4 percent of women) from one income group to another, and more women than men transition to a higher income group, making them relatively better-off. Moreover, the income mobility matrices show that the intervention resulted in more transitions to both lower (downward mobility) and higher (upward mobility) income groups among poor or near-poor women and men; among women, about 60 percent of those for whom there was a transition had market income less than the 40<sup>th</sup> percentile.

# _Effect on Poverty and Inequality_

The distributional impacts of fiscal policy are assessed using changes in poverty levels and income inequality. This analysis uses two poverty lines: (1) a relative line set at two-thirds of the median market income; and (2) an absolute line obtained by calibrating a threshold that could produce the official national poverty rate. Table 4 presents results of fiscal policy effects on poverty incidence, gap, and severity by gender at different CEQ income concepts. The poverty indices for both absolute and relative poverty lines tend to be higher for women at all income levels. Moving from market income to net market income shows the change in poverty due to direct taxes, which increased absolute as well as relative poverty for both men and women.

**Table 4: Poverty** **<u>by CEQ Income Concepts and Gender</u>**

||**Mark**<br>|**et Income**<br>|**Gros**<br>|**s Income**<br>|**Net**<br>**In**<br>|**Market**<br>**come**<br>|**Dis**<br>**In**<br>|**posable**<br>**come**<br>|**Con**<br>**In**<br>|**sumable**<br>**come**<br>|**Fina**<br>|**l Income**<br>|
|---|---|---|---|---|---|---|---|---|---|---|---|---|
||**Men**|**Women**|**Men**|**Women**|**Men**|**Women**|**Men**|**Women**|**Men**|**Women**|**Men**|**Women**|
|**Relative poverty line**|||||||||||||
|Poverty incidence|26.9|33.2|26|32|27.9|34|26.9|32.9|29.6|35.4|22.5|28.8|
|Poverty gap|9.5|11.7|8.9|11.1|9.9|12.1|9.3|11.5|10.4|12.8|8|9.6|
|Poverty severity|4.6|5.7|4.3|5.2|4.9|5.9|4.5|5.5|5.1|6.2|8.9|6.8|
|**Absolute poverty line**|||||||||||||
|Poverty incidence|20.8|26.3|20|25.4|21.6|27.1|20.7|26.2|22.6|28.7|17.1|21.5|
|Poverty gap|6.9|8.5|6.5|7.9|7.2|8.9|6.8|8.3|7.6|9.4|5.9|6.9|
|Poverty severity|3.3|3.9|3|3.6|3.4|4.1|3.1|3.7|3.6|4.3|9.6|6.3|

Source: Authors’ calculations; ESS 2018/19data.

In general, looking at the final income, we see that the fiscal actions reduced poverty and inequality for both men and women. Moving along the income concepts, we see the changes in poverty and inequality due to different taxes and transfers. For example, from market to gross income, there is evidence that direct transfers reduce both absolute and relative poverty; absolute poverty falls by 0.8 pp for both women and men (Table 3). These positive distributional effects could be due to PSNP, the large transfer program. Apparently, direct transfers are sufficient to offset the povertyinducing impact of direct taxes for both relative and absolute poverty lines. Indirect taxes worsen 19