Poverty-reducing commodity tax reforms

Following Ahmad and Stern (1984) a number of papers have been devoted to the analysis and the application of revenue-neutral and welfare-enhancing marginal commodity tax reforms. A recent stream of literature has investigated poverty-reducing commodity tax reforms using specific poverty measures. Here we derive the conditions under which a revenue-neutral marginal commodity tax reform increases the mean income of the poor and generates Lorenz-dominance of post-tax with respect to pre-tax distribution of equivalent income among the poor. These conditions are easy to interpret and not particularly difficult to apply.