The evolution of tax and benefit policy in Latvia: what has been the place of distributional considerations?

Latvia has one of the highest levels of income inequality and poverty in the EU. In this article, we argue that distributional considerations, especially assistance for those really in need, have had a low priority in designing tax and benefit policy in Latvia. We estimate the distributional impact of budget austerity measures that were implemented in 2008-2012 under the programme with the international lenders and show that the impact was progressive. At the same time, we argue that many of the reforms implemented in response to the crisis had been called for much earlier, thus in a way these anti-crisis measures were simply correcting previous policy failures. We argue that the international lenders played a major role in defining the direction of the reforms and ensuring protection of the poorest population groups. We estimate that some major reforms implemented by the government after completion of the programme with the international lenders, will have a regressive impact, despite earlier government commitments and lenders’ recommendations.