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Assessing the cushioning effect of tax-benefit policies in the Andean region during the COVID-19 pandemic

Abstract:

This paper aims to assess the role of tax-benefit policies in mitigating the effects of the COVID-19 crisis on the distribution of household disposable income in Colombia, Ecuador and Peru. Tax-benefit microsimulation and nowcasting techniques are used to adjust 2019 microdata to reflect the labour market and earnings situation observed in official labour force surveys collected during the pandemic. Our results show a sharp drop in household disposable income and a dramatic increase in poverty and inequality during the second quarter of 2020, with the national poverty headcount increasing by 73% in Colombia and more than doubling in Ecuador and Peru. By the end of 2020, the economy recovers but poverty and inequality remain above the pre-pandemic levels. COVID-related policies cushion the effect of the crisis at the bottom of the distribution, and their effect on poverty and inequality largely depends on the generosity of the benefits * This study was financed by the Global Challenges Research Fund (GCRF@ Essex). The results presented here are based on ECUAMOD v1. 5, COLMOD v2. 3 and PERUMOD v1. 1. ECUAMOD is developed, maintained, and managed by UNU-WIDER in collaboration with the EUROMOD team at ISER (University of Essex), SASPRI (Southern African Social Policy Research Insights), and local partners in selected developing countries in the scope of the SOUTHMOD project. The local partner for ECUAMOD is Facultad Latinoamericana de Ciencias Sociales (FLACSO) Sede Ecuador. COLMOD is developed and managed by the Faculty of Economics at Universidad Externado de Colombia. PERUMOD is …