Social Protection Systems in Developing Countries. Miguel Niño-Zarazúa, UNU-WIDER

Transcription

1 Social Protection Systems in Developing Countries Miguel Niño-Zarazúa, UNU-WIDER

2 Outline of Lecture Introduction: rise of social protection in the global South Recent history Typology of social protection: focus on social assistance Design features (with a particular focus on CCTs) Overview of impacts Main challenes to scale up social assistance in developing countries Financing, institutional capacity and political economy factors Concluding remarks

3 Introduction Rise of social protection in the global South A shift in policy thinking that reflects an emerging consensus that eradicating poverty requires economic growth, basic service provision and social protection Forms of social protection in the global South 1) Social Insurance (contributory health, unemployment and pension systems) 2) Labour market regulations (minimum employment standards and worker rights, including child protection 3) Social Assistance (income transfers to address poverty and vulnerability)

4 The rise of Social Assistance A new paradigm in the fight against poverty and vulnerability Tax-financed (and/or aid-supported) policy instruments: From food-aid and subsidies to regular, reliable and predictable income transfers Emerging consensus that eradicating poverty requires economic growth, basic service provision and social protection A shift from poverty as a lack of income to poverty as a multidimensional phenomenon. Over 30 developing countries have large scale social transfer programmes Pilot schemes being introduced in Kenya, Malawi, Ghana and Zambia; and at implementation in Nigeria, Liberia, Uganda, and Tanzania More than 860 million people currently benefit from social assistance, making it the most important policy instrument against poverty at the present time

5 Typology of social assistance Social Assistance Pure income transfers Income transfers plus social services Child and Household Allowances (ZA Child Support Grant; Argentina s Asignación Familiar x Hijo) Old Age and Disability Pensions (ZA Old Age Grant; Mexico s 75 y Mas; India s Old-Age Pension Scheme Human Development Programmes (CCTs) (e.g. Mexico s Progresa- Oportunidades-Prospera; Brazil's Bolsa Familia; Colombia Familias en Acción; Bangladesh s Primary Education Stipend Integrated Poverty Reduction Programmes (China s Urban Minimum Living Subsidy Scheme DiBao; Chile Solidario, and Bangladesh s Challenging the Frontiers of Poverty Reduction/Targeting the Ultra Poor Workfare programmes (Ethiopia s Productive Safety Net Programme; Mexico PET) Employment guarantee schemes (India's Maharashtra National Rural Employment Guarantee Scheme) Poverty as lack of income Poverty as deficit in human capital and assets Poverty as multidimensional

6 Number of Number of Social Protection: policy households approaches (in beneficiaries against (in millions) millions) poverty Programme title Country Type Country classification 1/ Poverty focus 2/ National Rural Employment Guarantee Scheme India Income transfer plus Lower middle income High Urban DiBao China Integrated antipoverty Lower middle income High Program Bantuan Tunai, Bantuan Tunai Langsung Indonesia Pure income Lower middle income High Bolsa Familia Brazil Income transfer plus Upper middle income High Rural Dibao China Pure income Lower middle income High Prêvidencia Social Rural Brazil Pure income Upper middle income Categorical Indira Gandhi National Old Age Pension Scheme India Pure income Lower middle income High Progresa-Oportunidades Mexico Income transfer plus Upper middle income High 100 Days Employment Generation Scheme (EGP) Bangladesh Income transfer plus Low income High Tekun (transfer in less developed regions for destitute households) China Pure income Lower middle income High Beneficio de Prestaçao Continuada Brazil Pure income Upper middle income High Expanded Senior Citizens Act of 2010 Philippines Pure Income Lower middle income Categorical National Family Benefit Scheme India Pure income Lower middle income High Old Age Pension South Africa Pure income Upper middle income High Child Support Grant South Africa Pure income Upper middle income High Subtotal for 15 largest programmes Other 79 programmes TOTAL Developing world 3/ Source: Barrientos, Niño-Zarazúa and Maitrot (2010) 6

7 Number of P rogrammes 180 Cumulative flagship transfer social programme assistance starts programmes by type by type In Kind HD-CCT Employment Categorical- pension Categorical- Other

8 Origins of social assistance in Latin America Latin America witnessed an important democratization process since the late 1980s and early 1990s (end of Cold War) that saw many countries in region moving from military dictatorships (Bolivia, Chile, Argentina, Brazil, Paraguay, Uruguay) and authoritarian regimes (Mexico and Central America) towards more competitive political systems The politisation of poverty became a feature of political processes, with civil society more actively demanding a change in the status quo Over the last 15 years, poverty and inequality has fallen in most LA countries, partly due to the implementation of social assistance programmes (SAPs) notably conditional cash transfers (CCTs) and old age pensions since the early 2000s Government social spending (education, health and social assistance) has also increased substantially, from 9.5% of GDP in 1990s to 14% in the first decade of the 2000s

9 Evolution of Mexico s Progresa- Oportunidades- Prospera programme Progresa under PRI (centre) regime Oportunidades under (right) PAN regime 20 Coverage in million of people 10 Budget in billions of Pesos allocated budget per capita Maximum transfer per beneficiary Prospera under PRI (centre) regime

10 Origins of social assistance in SSA In sub-saharan Africa, the green shoots of social protection are also mainly in the area of Social Assistance Social Assistance has become a component of a second-generation of Poverty Reduction Strategy Papers in the region. There are now National Social Protection Strategies in Ghana, Mozambique, Rwanda and Uganda Livingstone Process through the African Union agreed to push the SP agenda to replace emergency aid with regular and reliable income support Social Assistance is also increasingly seen as a policy response to shocks i.e. food and financial crises Borrowing from experiences in Latin America

11 Origins of social assistance in SSA Non-contributory pensions for poor whites in South Africa borrowed from early origins of European Welfare systems in the 1920s Apartheid wouldn t allow white poverty Donor-supported responses, usually food aid against famine and food insecurity Since the 1980s, Angola, DRC, Ethiopia, Liberia, Mozambique, Rwanda, Sierra Leone, Somalia, Sudan and Uganda faced humanitarian crises Productive Safety Net Programme (PSNP) in Ethiopia Indigenous forms of protection community and household level safety-nets that although imperfect, continue to evolve: Informal (and formal) savings more effective for small-losses/high frequency contingencies Insurance schemes - more effective for large-losses/low-frequency contingencies

12 Before mid-1990s After mid-1990s Pure income transfers Dynamics Pure income transfers Income transfers plus services MIC Africa model agebased vulnerability transfers Old age and disability grants in South Africa, Mauritius, Namibia, Seychelles Categorical universal transfers, means tested in South Africa; Racially segregated in eligibility and benefits Politics: Domestically driven by settler elites Finance : tax financed Extension of coverage Removal of racial discrimination; Adoption of social pensions in Botswana, Lesotho, and Swaziland; 1998 CSG in ZA Politics: Equity politics in ZA and Namibia; electoral politics in Lesotho; Sub-regional demonstration effect Finance : tax financed Experiments with income transfer plus services Zibambele and Gundo Lashu in South Africa LIC Africa model Extreme povertybased transfers Few countries with public welfare programs (Zambia, Zimbabwe) but emergency food aid dominant Politics: food aid externally driven, but exploited by local political elites Finance: donor financed Shift from food aid to social transfers Mozambique FSP Zambia pilot categorical transfer programs Politics: donor driven Finance: donor financed in Zambia; joint donorgovernment financed in Mozambique Ethiopia PNSP; Kenya OVC; Malawi s Mchinji; Ghana s LEAP Politics: donor driven, but rising government engagement Finance: largely donor financed but domestically financed in Ghana

13 South Africa s Social Assistance System Coverage in million of people Old Age Pension Child Support Grant Care Dependency Grant Foster Child Grant Disability Grant 10.6 million people receive a transfer program - about 20% of South Africa s population The system costs 2.5% of GDP CSG has extended age eligibility overtime from 15 to 17 in 2008 and then to 18 Evidence shows that old age pensions and the Child Support Grant are well targeted at the poor and have been central to poverty alleviation in the post-apartheid years

14 Key design features

15 Design features: poverty focus Welfare enhancing for the better-off Welfare enhancing for the worst-off Marginal value of transfers. a. b Income transfer for the worst-off a dollar that helps you avoid poverty is more valuable than a dollar that helps you become richer c.. d Income transfer for the better-off Household welfare One of the most distinctive policy features of SPPs is their focus on the poorest and most vulnerable The judgement about assisting the poorest has a strong foundation in principles of social justice. Welfare economics suggests that policies focusing on the poorest are welfare-enhancing (Sen 1986). Diminishing marginal utility implies that a transfer will produce the greatest marginal increase in utility if it is directed to the worst-off

16 Design factors: identification and selection Categorical approaches used for the identification of vulnerable groups. These are based on age (e.g. children, the elderly); health status (e.g. people with HIV/AIDS, disabilities), and disadvantaged conditions (e.g. widows, orphans) Geographical approaches have been extensively used with means-tests/proxy means tests, BUT they may induce exclusion errors Self-selection is adopted by workfare programmes and employment guarantee schemes, BUT they induce exclusion and inclusion errors Means-tests or proxy means tests are effective in identifying eligible beneficiaries, BUT they heavily rely on survey and census data Households that receive the transfer Poor households Efficient selection Non-poor households Type II inclusion error Households that do not receive the transfer Type I exclusion error Efficient selection

17 Design factors: conditionalities Design features, particularly the so-called conditionalities, of cash transfers (CCTs) have dominated the discussion on Social Assistance in Latin America Conditionalities rely on the assumption that under extreme deprivation, households heavily discount children s future consumption on education, healthcare and nutrition. Conditionalities are expected to push up shadow prices of education and health utilisation Conditionalities have also played an important role in gaining public support to expand SP in Latin America

18 Deficits in human capital and the poverty trap Stock of human capital Ability to invest in human capital (optimal investment line) Future labour productivity Present investment in human capital 0 a b c Actual investment Household income Low education, poor health and malnutrition in children lead, through various cognitive and physical channels, to low labour productivity in adulthood. In turn, low labour productivity translates into low incomes, which lead to a vicious cycle of poverty or poverty traps. Poverty trap Future income Income contribution from a cash transfer 18

19 Theoretical considerations of CCTs To understand the income and substitution effects of CCTs, consider a two-period model in Parker et al (2008): U 1 C 1, L 1 + βu 2 C 2, L 2, subject to the constraints S + t 1 + h 1 + L 1 T, t 2 + h 2 + L 2 T, in childhood in adulthood C 1 + C r = p ss + t 1 W 1 + M 1 (h 1 ) + t 2W 2 S 1 + r + M 2(h 2, S). 1 + r An optimality condition that hold in any interior solution can be expressed as C 1 and C 2 denote consumption of individuals when children (in period t1) and when adults (in period t2) L 1 and L 2 denote leisure β denote the discount rate p s is cash transfer paid to school attendance h 1 and h 2 denote work in home production S is the amount of schooling t is the time spent working in each period, conditional upon time endowment T MU C1 W 1 p s = βmu C2 (t 2 W 2 S + M 2S (h 2, S)) W 1 is the child wage rate W 2 (S) is the adult wage rate Direct and indirect costs of schooling (forgone earnings and leisure) Marginal benefit of spending additional time in school, i.e. higher earnings as an adult Note: the cash transfer (p s ) reduces the shadow price of children s work with a substitution and income effect: It reduces time spent at work in childhood, and increases life time earnings in adulthood M 1 (h 1 ) is the child contribution to household production, M 2 (h 2, S) is the adult contribution to household production. M 1 and M 2 both increase in labour at decreasing rate

20 Theoretical considerations of CCTs The benefit of additional schooling depends on the time individuals spend working as adults in market or home production, so the optimal condition is: M 2 h 2, S = W 2 S If labor productivity in home production does not rise as rapidly as in the market with schooling (the usual case), the cash transfer will reduce time spent in home production with important gender implications If cash transfers are made conditional on a minimum of school attendance (e.g. 85% in Brazil s Bolsa Familia and Mexico s Oportunidades), the resource constraint of individuals is given as: C 1 + C 2 = pi(s) + t 1+r 1W 1 + M 1 (h 1 ) + t 2W 2 S 1+r + M 2(h 2 ), where 1+r I(S) = ቊ 0 if S < S min 1 if S S min NOTE: For children already receiving S S min, the CCT only has an income effect. For children with S < S min even after the CCTs, there is neither income nor substitution effect. For children who did not receive S min before the CCT, but who did after, they observe both income and substitution effects.

21 Key factors for impact effectiveness of CCTs Transfer size is connected with the incentive mechanisms of CCTs, and underpins design choices. In Latin America, transfers varies from 6% as share of HH income in Brazil to nearly 20% in Mexico -key to maintain real value Gender dimensions: 1. Income transfers are given to mothers women, effective agents for social change 2. Transfer size for girls increases with school progression gender inequalities Regular, predictable and reliable cash transfers provide a minimum level of security for consumption smoothing and are key for medium- and longer-term investment decisions There is no rule of thumb as regards to duration of support, as the optimal length of assistance is contingent on poverty status and household composition: 1. Some countries adopt graduation strategies that are based on categorical criteria (e.g. as long as eligible school-age children remain enrolled in school) or periodic eligibility assessments (e.g. Brazil every 2 years; Chile, every 6 years) (see Villa and Niño- Zarazúa 2014 for a discussion)

22 What do we know about the impact of CCTs? Given the heterogeneity of preferences and constraints, the extent to which CCTs impact education, nutrition and labour outcomes of children can only be tested through empirical analysis Challenges in impact evaluation Selection bias: Where unobserved factors, which are associated with CCT participation, are correlated with welfare outcomes. Examples: CCTs are non-randomly placed in poor areas (non-random programme place problem). Also poor beneficiaries are nonrandomly selected into a transfer programme (self-selection problem) Spillover effects: When members of the control group benefit from the intervention. Contamination also occurs when members of treatment and/or control groups have access to other interventions which affects welfare outcomes Impact heterogeneity: when different groups (e.g. the moderate and extreme poor) benefit from categorical policies (e.g. school feeding programmes), or when interventions include rural and urban locations that are likely to observe different impact results (the generalisation problem) Note: for a in-depth discussion see Special Issue on Experiments in Development Economics (Gisselquist and Niño-Zarazúa Eds) in Journal of Globalization and Development, Volume 6, Issue 1 (Jun 2015)

23 What do we know about impact of CCTs? Review studies have provided import but limited information on what works (Fiszbein & Schady 2009; Barrientos & Niño-Zarazúa 2010, Manley et al 2011; Bastagli et al 2016) Most evidence relies on smaller-scale scale programmes (some of which are randomized control trials). Few studies come from national-scale CCTs, mainly from Latin America Overall, the evidence point at a positive impacts on education, labour and nutritional outcomes, although the magnitude and statistical significance vary according to: Design features that affect individual behaviour Access to, and quality of complementary public services Social norms and structural factors 23

24 What do we know about CCTs impacts on schooling? Study Programme Variable and treatment population (e.g. age of child) Effect Measure of change Significance Details Akresh et al. (2013) NCTPP (Burkina Faso) Percentage of school days the child attended during the entire academic year (school roster) Percentage % CCT, children aged 7 15, after 2 years Barrera-Osorio et al. (2008) CSAE (Colombia) Verified attendance at school Percentage 0.01 T1= Basic CCT, San Cristóbal Benhassine et al. (2013) Tayssir (Morocco) Attending School by end of year 2, among those 6 15 at baseline (Household survey) 0.74 Percentage 0.01 Labelled cash transfer, after 2 years, administered to one child per household aged 6 12 Evans et al. (2014) Ferré and Sharif (2014) Filmer and Schady (2011) TSAF (Tanzania) Ever attended school 0.04 Percentage 0.05 CCT, children aged 0 18 years, after months Shombhob (Bangladesh) CSP (Cambodia) Number of days in school over past 2 weeks Number of days NS CCT, children aged 6 15, after 13 months Child s presence at school during unannounced visit Percentage 0.05 CCT, Fourth Follow Up June 2007, US$45 scholarship, Secondary School students Maluccio and Flores (2005) RPS (Nicaragua) Current attendance (if child indicated she/he was still enrolled and had missed three or fewer days in the past month or more because of illness 0.14 Percentage 0.1 After two years, age 7 years Perova and Vakis (2012) World Bank (2011) Juntos (Peru) Currently attending school on registration 0.25 Percentage 0.01 CCT, after 5 years, children aged 6 14 PKH (Indonesia) Regular primary school attendance (>85%) Percentage point NS CCT, children aged 7 12 Source: Bastagli et al (2016) Note: NS (no significant at conventional levels) 24

25 What do we know about CCTs impacts on child labour? Study Programme Variable and treatment population (e.g. age of child) Effect Measure of change Significance Attanasio et al. Familias en Acción Child is working (rural child 10 13) Percent point change NS (2010) (Colombia) Attanasio et al. Familias en Acción Child is working (urban child 10 13) Percent point change 1% (2010) (Colombia) Barrera-Osorio et al. (2008) SCAE (Colombia) Child s primary activity is work (in grade 6-10) Percent point change NS Benedetti and Ibarrarán PRAF (Honduras) Participated in any work in past week (aged 6 17 at baseline) Percent point change NS (2015) Bustelo (2011) RPS (Nicaragua) Child is working (impact on targeted children 7 13) Percent point change NS Edmonds and Schady (2008) BDH (Ecuador) Child works for pay (aged >10) Percent point change NS Fitzsimons and Mesnard Familias en Acción Participates in any work including looking for work Marginal effect 1% (2014) (Nicaragua) Galiani and McEwan (2014) PRAF (Honduras) Child works outside the home Percent point change 1% Gee (2010) RPS (Nicaragua) Child is working (aged 9 15) Percent point change 1% Kassouf and de Oliveira BPC (Brazil) Child is working in past week (children aged 10 15) Not stated NS (2012) Maluccio and Flores (2005) RPS (Nicaragua) Child is working (child aged 7 13 in first to fourth grades but not completed Percent point change 5% the fourth grade Maluccio (2003) RPS (Nicaragua) Child is working (10 13 year-olds who have not completed fourth grade) Percent point change 5% Perova and Vakis (2012) Juntos (Peru) Child is working in past week (aged 6 14) 0.17 Percent point change NS Schady and Araujo (2006) BDH (Ecuador) Child is working in follow-up survey Percentage points 1% World Bank (2011) PKH (Indonesia) Worked for wage in past month (aged 7 12) Percent point change NS Source: Bastagli et al (2016) Note: NS (no significant at conventional levels) 25

26 What do we know about transfers impacts on (mal)nutrition? Programme Country Study Evaluation method anthropometric outcomes Conditional cash transfers Bolsa Alimentação Brazil Morris and others 2004 Instrumental Variables HAZ, WAZ Familias en Acción Colombia Attanasio and others 2005 Propensity Score Matching, Differencein-Difference HAZ*, BW* Oportunidades Mexico Leroy and others 2008 Propensity Score Matching, Differencein-Difference WHZ'* Height*, weight*, HAZ*, Oportunidades Mexico Behrman and Hoddinott 2005 Randomised, Fixed effects Height* Oportunidades Mexico Barber and Gertler 2008 Randomised, Instrumental Variables BW*, LBW* Oportunidades Mexico Rivera and others 2004 Randomised Height* Oportunidades Mexico Gertler 2004 Randomised Height*, stunting Atención a Crisis Nicaragua Macours, Schady, and Vakis 2008 Randomised HAZ, WAZ, BW, LBW Red de Protección Social Nicaragua Maluccio and Flores 2005 Randomised, Difference-in-Difference HAZ, stunting*, underweight*, wasting Unconditional cash transfers Bono Solidario Ecuador Leon and Younger 2007 Instrumental Variables HAZ*, WAZ* Bono de Desarrollo Ecuador Paxson and Schady, forthcoming Randomised Height, HAZ Humano Child Support Grant South Africa Agüero, Carter, and Woolard 2007 Propensity Score Matching HAZ* Source: World Bank (2010) Note: BW = birthweight; HAZ = height-for-age z-score; LBW = low birthweight; WAZ = weight-for-age z-score; WHZ = weight-forheight z-score. * reflects statistically significant at conventional levels 26

27 What do we know about transfers impacts on (mal)nutrition? Height Anthropometric measure HAZ (Height-for-age) z- scores Stunting Weight Results Mexico s Oportunidades showed positive impacts on child height In treated rural areas children aged months were one centimetre taller than the control group In urban areas, children younger than six months grew 1.5 centimetres more than children in the control group However, Ecuador s Bono de Desarrollo Humano, a UCT, showed no impact on the height of children aged three to seven years Colombia s Familias en Acción improved HAZ of children 0 24 months old, but not of children months In urban areas, Mexico s Oportunidades improved HAZ of children 0 6 months, but not of those 6 12 or months South Africa s Child Support Grant had positive impacts on HAZ on children 0 36 months Neither Brazil s Bolsa Alimentação, Ecuador s Bono de Desarrollo Humano, nor Atención a Crisis or Red de Protección Social had no impact on the HAZ of children in any age group Nicaragua s Red de Protección Social reduced stunting by 5.2 percentage points among children younger than five years of age, but Mexico s Oportunidades had no impact on stunting of children months old Five out of six evaluations found positive programme impacts on the weight of children in different age groups. Mexico s Oportunidades program in urban areas improved the weight of children aged zero to six months at the time of enrolment by 0.77 kilogrammes; the weight of children from the lowest-income group also increased 27

28 What do we know about transfers impacts on (mal)nutrition? Anthropometric measure WAZ (Weight-for-age) z- scores WHZ (Weight-for-height) z-scores Wasting LBW (Low-Birthweight) Results Half of CCTs programmes had no impact on WAZ, and in one CCT, WAZ actually worsened: Nicaragua s Red de Protección Social CCT improved the WAZ of children under six years of age, but neither Nicaragua s Atención nor Ecuador s Bono Solidario had an impact on WAZ of children of any age group Each additional month of exposure to Brazil s Bolsa Alimentação was associated with a 0.13 lower WAZ than that observed in children of the same age in the control group In urban areas, Mexico s Oportunidades, raised WHZ by 0.47 among children 0 6 months old in program areas, but not for those aged 6 12 or months Only in countries where children were widely wasted, studies focused on wasting. In Latin America less than 1% of children are wasted (less than 2.3% of the reference population), and that s why few studies use wasting as proxy nutritional indicator Birthweight and the incidence of LBW respond to activities targeted to pregnant women, including micronutrient, energy supplements and other prenatal services Most programmes reported a significant impact: Mexico s Oportunidades reported a g higher birth weight, and a 4.6 % point reduction in low birth weight Greater impact among women who spent more time in the programme and those who received more cash. Colombia s Familias en Acción reported + impact on raising birthweight; but, Nicaragua s Atención a Crisis had no impact on birthweight 28

29 What do we know about transfers impacts on (mal)nutrition? The meta-regression line shows a positive and significant correlation between programme duration ad the estimated impact on HAZ z- scores Source: Manley et al (2011) 29

30 Is it worth investing in social assistance? Intervention Estimated benefits/cost savings Source Peru's education It averted 11.1 cases of stunting per 100 Waters et al. (2006) programme children in the 0-18 month age range Mexico s Oportunidades 2.9 % increase in lifetime earnings (Behrman and Hoddinott 2005) South Africa' Child Support Present value exceeded by more than Agüero, Carter, and Woolard Grant 60% the cost (2007) Bolivia's PIDI :1 benefit:cost ratio Behrman, Cheng and Todd (2004) Complementary interventions Micronutrient powders 37:1 benefit: cost ratio (iron) Sharieff et al. (2006) Deworming 6:1 benefit:cost ratio Horton et al. (2008) Iron fortification of staples 8:1 benefit:cost ratio Horton and Ross (2003, 2006) Salt iodization 30:1 benefit:cost ratio Horton et al. (2008) 30

31 Main challenges ahead: Institutional capacity In MICs, partnerships with private sector providers have facilitated the expansion of transfer programs, and a progressive reach of poor households, even in remote rural areas In Namibia and South Africa, the management of the transfers is under the government control, but the delivery of grants has been increasingly taken over by private providers In Mexico, financial institutions have been involved in the delivery of Progresa-Oportunidades (see Masino and Niño-Zarazúa 2014) Key challenge: to improve access and quality of basic service provision together with social assistance

32 Main challenges ahead: financing MICs spend less than 1% of GDP on Social Transfers LICs African countries: 3-5% GDP Old age pension as % GDP Child benefit as % GDP Unemployme nt scheme as % GDP Transfer package as % GDP Revenue grants as % GDP Transfer package as % Revenue - grants Net ODA/ as % GDP Transfer package as % net ODA Guinea 0,6 1,5 0,3 2,8 15,6 17,7 7,5 36,9 Burkina Faso 1,1 2,8 0,6 5,2 13,1 39,5 12,5 41,3 Ethiopia 1,0 2,8 0,6 5,1 12,0 42,2 12,6 40,3 Tanzania 1,1 3,1 0,6 5,5 17,3 31,9 11,4 48,5 Senegal 1,1 2,0 0,5 4,1 19,6 21,1 8,0 51,7 Kenya 0,9 3,0 0,6 5,2 20,8 24,9 3,9 131,3 Cameroon 0,8 1,8 0,4 3,5 20,0 17,3 2,2 154,0 ILO (2008)

33 Financing Tax revenues as a share of GDP have grown modestly in the sub-saharan region; from 13.5% in the 1980s to 18% in the 2000s Constraints are associated with: The structure of the economy the rural subsistence economy and the informal sector are difficult to tax Administrative capacity of revenue authorities Political economy factors (opportunistic incumbents avoid raising income tax) What are the options available to finance social assistance?

34 What about redistribution? Redistribution policies have been important for the financial mix of social protection in industrialised countries. In SSA, however, redistribution policies remain very limited: The marginal tax rate (MRT) on the rich that would be necessary to eliminate the normalised aggregate poverty gap in SSA would be simply economically and politically prohibitive as it would exceed 100% in most countries MTR: proportion of tax paid for each additional income unit earned at the highest income threshold

35 Marginal tax rate on the rich needed to eliminate the normalised aggregate poverty gap in sub-saharan Africa Zambia Uganda Swaziland Sierra Leone Senegal Rwanda Nigeria Niger Mali Malawi Lesotho Guinea-Bissau Guinea Ghana Gambia Ethiopia Central African Republic Burkina Faso Cameroon Tanzania Burundi Mozambique Madagascar Cote d'ivoire Botswana South Africa Niño-Zarazúa et al (2012)

36 What about resource mobilisation? Revenues from Natural resources, potentially feasible for resource rich countries Risks: 1) price uncertainty; 2) opportunistic behaviour of incumbents Renegotiation of contracts with companies involved in the exploitation of natural resources (e.g. Bolivia) Shifting expenditure tax exemptions/subsidies on foodstuff, and fuel are very regressive -amounted around $54 billion in 2010, roughly, 1/3 of ODA (170.6 billion USD) Risks: (e.g. the failing attempt to remove the fuel subsidy in Nigeria in 2012) Rises in VAT earmarked for pro-poor expenditures. VAT on sin products (e.g. cigarettes/alcohol) could rise revenues in India and Vietnam equivalent to 0.3 and 0.4 % of GDP, respectively. Anti tax-evasion policies Chile was able to reduce VAT evasion from 20% in the 1990s to less than 10% in 2009

37 Political economy considerations Democratic transitions and economic growth (and better fiscal space) seem to have created favourable conditions to introduce and expand Social Assistance But uncertainties remain with regard to governance issues

38 Political economy considerations What does the emergence of social assistance mean for welfare institutions in SSA? In LICs, where welfare institutions are absent, social assistance might lead to new state institutions aimed at addressing poverty and vulnerability In MICs, with existing social security institutions, social assistance has led to parallel institutions Contributory vs. non-contributory (based on the principle of citizenship) Life-course protection vs. basic protection Insurance against contingencies vs. investment against structural poverty

39 Political economy considerations What are the implications of these transitions for economic and social development? What role do (and will) elites, political parties and self-interest taxpayers (a raising middle class) play in the expansion of social assistance in SSA? Possibly contingent on externalities (e.g. reduction in crime) and incentives What can we expect from opportunistic incumbents operating under imperfect competitive political systems? Will donor support to LICs translate into institutionalisation of social assistance or simply peter out and be quietly forgotten when donors move to the next new game in town?

40 Concluding remarks The green shoots of social assistance are sprouting with MIC and LIC varieties There are key elements for policy effectiveness: Design features (incentives) that affect individual behaviour Access to, and quality of complementary public services Parallel interventions that address social norms and structural factors Concerns about whether the challenges can be met domestic politics, political economic considerations, financing and institutional capacity Social assistance is an important policy instrument against poverty and other forms of wellbeing deprivations However, a mix of social policy (including social assistance, education, health, sanitation, and so on) together with optimal tax policy for long-term financial sustainability, are needed to tackle poverty and other forms of wellbeing deprivations

41 Helsinki, Finland