Three Essays on the Impact of Public Policy on Inequality and Poverty in Malawi

Since independence, governments in most developing countries have implemented various public policies aimed at reducing poverty and inequality. Yet, despite the public policy interventions poverty remains widespread and pervasive and inequality has widened. In this thesis, microsimulation techniques are employed to examine public policies and the extent to which they have failed to achieve the objective of reducing poverty and inequality in Malawi. This thesis contains three interlinked studies covering different topics on the impact of public policy on inequality and poverty in Malawi. Chapter 1 assesses the effect of potential reforms to social assistance aimed at reducing poverty. The results show that the current tax-benefit system decreases income inequality but increases poverty because of income tax and the limited role of social benefits. We find that the current budget allocated to social benefits does not allow for reducing poverty significantly even under a different targeting approach. We further find that reducing extreme poverty by half would represent a large increase in social spending and a significant increase in taxes. Chapter 2 investigates the effects of informality and unemployment changes on the income distribution in Malawi between 2004 and 2016. Increases in informal jobs and unemployment levels have the effect of increasing inequality. Changes in informal jobs explained the reduction in poverty levels while the rise in unemployment had the effect of increasing poverty. Our results suggest that transitioning from informal to formal employment and job creation policies should be a main objective of policymakers. Chapter 3 investigates the impact of changes in employment due to the COVID-19 crisis on inequality and poverty. We find that poverty and inequality increased because of the COVID-19 outbreak. The corrective measures implemented, the Emergency Cash Transfer, were able to subdue the impact of the crisis especially at the bottom of the income distribution.