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Accepted Paper:

The effect of COVID-19 on poverty and inequality in five African countries: Preliminary estimates using tax-benefit microsimulation models  

Authors:

Jesse Lastunen (UNU-WIDER)
Katrin Gasior (SASPRI)
Gemma Wright (Southern African Social Policy Research Insights)
Maria Jouste (UNU-WIDER)
H. Xavier Jara (University of Essex)
David McLennan (SASPRI)
Kwabena Adu-Ababio (University of Helsinki)
Matteo Richiardi
Pia Rattenhuber (UNU-WIDER)

Paper short abstract:

We analyze the distributional effects of COVID-19 in five African countries, using detailed tax-benefit microsimulation models. Our preliminary results point to modest growth in inequality and large increases in poverty, with a limited role of automatic stabilizers in mitigating these effects.

Paper long abstract:

The COVID-19 pandemic presents a virtually unprecedented challenge to many developing countries, including most African nations. With their minimal social protection schemes and weak healthcare systems, these countries are particularly exposed to the virus. While implementing effective policy responses is challenging due to the constrained fiscal space faced by most African governments, appropriate emergency income support measures and tax waivers are critical in limiting the economic hardships resulting from COVID.

We analyze the distributional effects of the pandemic in Ghana, Mozambique, Tanzania, Uganda and Zambia, using novel tax-benefit microsimulation models. Our research offers insights into the economic impact of the crisis in 2020 and the effectiveness of COVID-related tax and benefit policies in alleviating the adverse effects on people’s livelihoods. Our main contribution comes from developing nuanced impact estimates of increases in poverty and inequality that result from the pandemic, along with detailed decomposition of the sources of these effects.

While the research is in progress, our preliminary results lend support to modest growth in consumption-based inequality and relatively large increases in consumption-based poverty across the five countries studied, while also pointing to notable heterogeneity in impacts across countries. Mozambique, in particular, was severely affected by the pandemic, with substantial increases in poverty and inequality and large reductions of incomes in the informal sector. Across all countries, automatic stabilizers only had a limited role in mitigating losses of disposable income. Our forthcoming work will unpack the contribution of emergency income support measures and tax waivers in alleviating these effects.

Panel P42
COVID-19 and taxation: Implications for equity in low-income countries