Analyzing the Distributive Effects of Fiscal Policies
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(1) the simplicity of data, analytical assumptions, and readiness to implement and (2) the comprehensiveness and richness of results to guide policy making. Both in off-crisis and crisis periods, there is a fundamental need to match analytical demands, available resources, and strategic issues to properly explore the distributive consequences of fiscal policies. What a crisis period may change, however, are the priorities of such a match, with considerations of the newly vulnerable population, the magnitude of the impacts, and the need for rapid responses becoming even more urgent. This chapter develops a two-stage approach to square such considerations in an effort to plan for the next crisis. The approach is based on a set of preferred properties leaning toward analyses that have lower data requirements and fewer strong assumptions, need lower analytical installed capacity, and are disaggregated in nature. Based on those criteria, the assessment of methods shows that (1) there are multiple techniques for analyzing the distributive consequences of fiscal policies before and during a crisis; (2) there is a fundamental trade-off between the simplicity of these tools and the richness and detail of the analysis; and (3) no single universal technique is likely to address the key questions and specific strategic shifts that may happen during a crisis. Instead of providing a universally preferred distributive technique, this chapter proposes two useful tools in preparing for the next crisis—that is, two simple analytical tools that, if used regularly and frequently, will contribute to a better understanding of the distributional implications of crises. The first tool is a simple qualitative questionnaire on fiscal decisions implemented at the sectoral level in a given period. This information is intended to complement, not substitute for, aggregate spending trends and more sophisticated ex post microanalyses. The second tool is ex ante microsimulations focusing on opportunities rather than on outcomes in the hope that the traditional short-term analysis of welfare outputs may be complemented with a discussion of longer-term effects addressing how to remove critical obstacles to an egalitarian society (in the sense of equal opportunities, regardless of circumstances) with universal access to key services. For example, the illustrative ex ante microsimulation exercise conducted for Liberia identifies the winners (for example, those types of children who lose comparatively less than the rest of the children) and losers (for example, those children who lose the most) in an economic shock produced by a reduction in public spending on education resulting from an aid cut. It shows that, beyond moderate average effects in the