Jordan - Efficiency and equity of government revenues and social expenditures (Vol. 2 of 2) : Annexes and statistical appendix

Report No. 5697-JO Jordan Efficiency and Equity of Government Revenues and Social Expenditures (In Two Volumes) Volume 11: Annexes and Statistical AppendiK June1986 Division 2C Country Programs Department 11 Europe, Middle East and North Africa Region FOR OFFICIAL USE ONLY Document of the World Bank This report has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS 1982 1983 1984 1985 1 Jordanian Dinar (JD) = US$2.84 US$2.75 US$2.60 US$2.54 1 US Dollar ($) = JD.352 JD.364 JD.384 JD.394  FOR OCWFICL UWE ONLY JORDAN EFFICIENCY AND EQUITY OF GOVERNMENT REVENUES AND SOCIAL EXPENDITURES ANNEXES AND STATISTICAL APPENDIX (VOLUME II) Table of Contents Page No. I. Income Distributional Impact of Jordan's Past Economic . . . . I Development I} Jordan: Suumary of Tax Systems, 1984 . . . . . . . . . . . . . 31 III. Guidance for Introduction of a Value Added Tax . . . . . . . . 37 IV. Local Government Finance in Jordan . . . . . . . . . . . . . . 57 V. Assumptions Behind Estimates of Income Tax Potential and . . . 69 * Sales Tax VI. Enoragement Lav of Investment . . . . . . . . . . . . . . . 75 VII. Introduction of a Student Loar. Scheme - Lessons frow . . . . 78 International Experience VIII. Costs of Education According to Account . . . . . . . . . . . 82 IX. Realth Care Providers . . . . . . . . . . . . . . . . . . . . 83 X. List of Questions to be Considered when Policies Involving . . 87 User Charges in the Health Sector are Examined Tbh documnt has a rstrd distibution nd may be ud by ipients aely in the puformane of tir offical duties Its contnts may odherw be disda who Wodd ank auth oI  ANNEX I Income Distributional Impact of Jordan's Past Economic Development 1.01 Like previous plans the current Five-Year Plan has recognized the importance to "reduce disparities in income levels among various segments of the population in order to achieve a more equitable distribution of GNP and economic development gains." The Plan has, however, not set quantitative targets on alleviation of disparities in income levels. Rapid economic growth coupled with a liberal outmigration policy formed the basis for a more market-oriented socio-economic policy. Nevertheless, the Government recognized that reaching the social objectives through exclusive reliance on market forces, i.e. distribution of economic gains through employment creation alone, would take too long and needed to be complemented by provision of social services and rural development to redistribute incomes to lower income groups. To safeguard their real incomes, price support measures of basic foodstuffs were also included in the social policy package. Table 1.1: INCOME DISTRIBUTION BY NDrIVIDUAL WAGE EARNERS AND SELF EMPLOYED Lowest 20S 2:Quintile 3:Quintile 4:Quintile 5:Quintile Urban 1982 6.9 10.4 17.3 24.3 41.1 1973 7.0 12.5 16.5 19.4 44.6 Rural 1982 7.5 11.2 18.7 26.2 36.3 1973 7.0 12.8 18.1 23.8 38.3 Source: Manpower Survey 1982/83, Department of Statistics and G. Assat, The Distribution of Income in 1973, Royal Scientific Society (draft). 1.02. The current analysis is essentially concerned with what happened between 1973 and 1982 with respect to distribution of wages and salaries of employees and self-employed as these are the only two years for which methodologically sound and comparable survey data are available. It is noteworthy that the income share differential is wider for urban areas than for rural which is most likely a result of the biased development efforts toward urban areas (Table 1.1). On the other hand, the urban development has somewhat reduced the interpersonal distribution. The share of the top 20 percent in urban areas in 1982 was about 5.9 times greater than that of the poorest 20 percent compared with 6.4 times in 1973. A similar reduction in disparity took place in the rural areas. This establishes that the poor were relatively better off in 1982 than in 1973 as measured  only in wage and salary terms of employees and self-employed and that the benefits of rapid development as measured on the aggregate by an average annual rate of real GDP growth of 9.1 percent were more evenly distributed. This is also confirmed by an overall low Gini coefficient of .3181 for Jordan and a small difference in relative inequality between urban and rural areas (Figure 1.1). Figure 1.1: IORENZ CURVE THE DISTRIBUTION OF INCOMES FOR INDIVIDUALS .Z,_~~~~~~~ I m -36d mmi / Gini Coefficients - Rural: .2905 Urban: .3286 Jordan: .3181 Source: Manpower Survey 1982/83, Department of Statistics 1.03 If one would use a more complete income concept as was used in the only comprehensive income distribution survey from 1973, the overall conclusions would be much more uncertain. As the survey of 1973 showed, the income differential between the top 20 percent compared with the lowest 20 percent for urban areas increased from 6.4 for wages and salaries for employees and self-employeed to 8.9 when a more comprehensive income concept was used (see Attachment A Table 6). 1/ Thus distribution of wages and salaries of employees and self-employed would not include the substantial capital gains which were made from real estate and land sales as well as the large inflow of workers' remittances. The expenditure distribution by expenditure groups as surveyed in the Family Expenditure Survey from 1980 is likely to better reflect the impact of capital incomes and workers' remittances. As expected, Table 1.2 shows that the income differential for urban areas increases from 5.9 as measured against distribution of wages and salaries of employees and self-employed in 1982 to 6.8 by household and to as much as 8.8 by individual, as measured according to the ratio between the top and the lowest expenditure group. The obvious shortcoming with expenditure data as a proxy for income distribution is that they do not take into account the inequality in distribution of savings. Thus absolute savings tend to be larger in upper-income brackets which would underestimate their incomes when expenditures are used as a proxy. Nevertheless, the income measure 1/ Includes incomes from assets and transfer payments (including workers' remittances).  implicit in the consumer expenditure surveys is important for the subsequent analysis in that it is closer to the measure of income likely to be used by households as a basis for their consumption and savings decisions. Therefore, it serves as a useful measure for the relative distribution of standard of living. TabLe 1.2: EXPENDITURE DISTRIBUTION BY EXPENDITURE GROUPS. BY FAMILIES AND INDIVIDUALS Lowest 207 2:Quintile 3:Quintile 4:Quintile 5:Quintile By Family: Total 6.0 100 14.6 29.1 44.2 Urban 6.3 11.6 15.0 24.2 43.0 Rural 4.9 10.3 14.5 20.6 49.6 By Individual: Total 5.8 9.2 13.1 20.9 51.0 Urban 5.8 9.1 13.0 20.7 51.3 Rural 5.8 9.4 13.4 21.4 50.0 Source: Family Expenditure Survey of 1980, Department of Statistics. 1.04 The same can be illustrated by the Lorenz curve shown in figures 1.2 and 1.3 which also indicates higher Gini coefficients of 0.3670 by household and as high as .4080 by individuals as measured against distribution of expenditures. The reduction of inequality measured by household is likely to be explained by the greater number of wage earners in lover income families. Figure 1.2: LORENZ CURVE THE DISTRIBUTION OF EXPENDITURES FOR INDIVIDUALS, 1980 __ _. -' * e Xs Xs O so as S o Gini Coefficients - Rural: .4012 Urban: .4014 Jordan: .4080 Scurre: Family Expenditure Survey 1980. Department of Statistics  Figure 1.3: LORENZ CURVE THE DISTRIBUTION OF EXPENDITURES FOR FAMILIES, 1980 * 30 I" M W is in in" *6__. r Gini Coefficients - Rural: .3998 Urban: .3430 Jordan: .3670 Source: Fadily Expenditure Survey 1980, Department of Statistics 1.05 Figure 1.4 shows that Jordan's income equality renks, as measured against distribution of expenditures, in the middle among the sample countries. Also it ranks favorably with respect to the ratio between the highes-' 20 percent and the lowest 20 percent. Again it has been stressed that the ranking for Jord-an is likely to become somewhat less favorable if a more comprehensive income concept is applied for Jordain. 1.06 The relative distribution of inequaLity can also be illustrated by the frequency distribution of individuals and households by income and expenditure groups. The distribution of wages and salaries of individual earners (employees and self-employed) shows a typical skewed-to-the-rigpht dlistribution (Figure 1.5). The mode, representing 35-50 percent of the wage earners, is about JD 75 per month for the whole East Bank, urban and rural areas. The mean wage for the whole East Ba-nk and for the urban areas is about 75 percent higher than the mode and declines to a difference of less than 40 percent for rural areas. It is obvious that the distribution is not normally distributed although there is apparent symmetry around the mode. The elongated tail for the East Bank represents wage earners making more than JD 2-50 per mouth representing about 15 percent of the wage earners with little spread between urban and rural areas. The relative poverty line l/ estimates for the urban areas comes out about 30 percent higher than the rural area or JD 68 per month compared to JD 52 per mouth. 1.07 As expected the modal income is about two-thirds higher at a household level compared with individual incomes (Figure 1.6). The average household income also moves up to about JD 200 for the East Bank I/ The relative poverty line is here defined as a fraction of employees and self-employed where incomes are less than half of median income. If individuals care about their relative position in the overall income distribution, the specification of poverty as a percent of a measure of central tendency such as the median may be quite reasonable.  FIGURE 1 4: INTERNATIONAL COMPARISONS OF INCOME INEQUALITY LOWEST 40 PERCENT RATIO or SHARES, HIGHEST 20X/LOWEST 20X 22 - 36- 20 -32- 28- 16- 24- 14- 12 -20- 10 16I5 a 12- 6 8 4 24 .,~~~~~~~~~~~~~~~~4A!o Nt 04t A 0 A >gSg