In this paper, we analyse the impact of government policies on income distribution and poverty in Switzerland. First, we give an overview of the Swiss welfare system and provide an estimate of the poverty problem in this country. Second, we discuss some major problems of fiscal incidence analysis. Third, we examine the impact of taxes and expenditures on income distribution in Switzerland using a budget incidence approach. The analysis is based mainly on the first nationwide representative Income and Wealth Survey 1980 conducted by the authors. The major findings are the following:
1 The government budget, including the social security system, has a significant redistributive effect which is due mainly to expenditures rather than to taxation.
2 Direct taxes reduce income inequality, measured by the Gini coefficient; indirect taxes increase it. The net effect of all taxes is to reduce income inequality.
3 The redistributive effect of social welfare expenditures is larger than that of other government expenditures.
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