Moving Beyond Traditional Cash Measures of Economic Well-Being: Including Indirect Benefits and Indirect Taxes

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Discussion Paper

Abstract

Most studies of economic well-being now use equivalent disposable income as their measure of resources. On the expenditure side of the ledger, this traditional measure ignores the benefits of publicly provided goods and services. On the taxation side of the ledger, it usually ignores the impact of all sources of taxation apart from income tax and social security contributions. This study includes health, education and housing indirect benefits and a range of indirect taxes within its scope and presents broadly comparable results for the UK and Australia. The results suggest that in both countries indirect benefits are not as progressive in their incidence as direct benefits, but they are nonetheless still unambiguously pro-poor. The study also indicates that the usual exclusion of indirect taxes from income analyses results in an unduly optimistic view of the extent of income redistribution achieved by welfare states.

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