Essay 8: Can Budgets Be Raised over Time to Reduce the Need for Targeting?

Targeting within Universal Social Protection | 59

performance could be improved through broader tax bases; more progressive personal income taxation; more neutral capital taxation; improvements in the design of value added taxes; more and better use of carbon, property, and inheritance taxes; digital enhancements; and institutional strengthening to enable revenue administrations to implement and manage these tax reforms.

Essay 8: Can Budgets Be Raised over Time to Reduce the Need for Targeting?

One of the main reasons to target is to focus limited resources on the neediest, for example, to reduce poverty at low cost. Many targeted programs got their start in moments of crisis—following the debt crisis of the 1980s; the East Asia financial crisis of 1998; the global food, fuel, and financial crisis in 2008–09; the COVID-19 pandemic and linked recession; or national rather than global economic crises, droughts, floods, or other disasters. In crisis, needs are higher than normal and fast action is imperative to prevent or minimize big upticks in poverty or losses in human capital. In crisis, there may be an urgency that redirects budgets to the new priority or overrides the usual fiscal caution, but there is no time to build new sources of revenue and budgets can be quite constrained relative to need. Thus, focusing resources as best as possible, even if rather imperfectly, is not a surprising choice in crisis-driven programs.

In less pressured moments, when the question is not so much “what can be done today” but “what kind of society or social contract is it desirable to build,” the budget constraint may be taken as less fixed. Thus, many exercises in building a vision of social protection provide ideas for program design, coverage, and benefits that exceed current social protection budgets. Ortiz, Cummins, and Karunanethy (2017) provide a costing exercise for social floors for 57 low- and middle-income countries, and Durán-Valverde et al. (2020) contribute a post-COVID-19 update. Filgueira and Espindola (2015) offer a version of basic income transfers for children and the elderly in Latin America; ILO-UNICEF (2019) provides a vision for universal child grants; and Packard et al. (2019) describe a comprehensive program for social assistance-insurance. In all these exercises, the cost of the suggested programs is, in most countries, in excess of the 1.5 percent average currently spent on social assistance programs (World Bank 2018b), sometimes several times as large. For example, Durán-Valverde et al.’s (2020) estimates for child allowances, maternity, disability, and old-age benefits amount to 8.5 percent of GDP for low-income countries, 3.4 percent for lower-middle-income countries, and 3.2 percent for upper-middle-income countries.16

60 | Revisiting Targeting in Social Assistance

Given the resonance of the larger visions, there is also work internationally that thinks about how to build fiscal capacity for social protection through raising additional revenue or reallocating expenditures. For example, Ortiz, Cummins, and Karunanethy (2017) outline possible vectors for action: reallocating public expenditures, increasing tax revenue, expanding social security coverage and contributions, lobbying for aid and transfers, eliminating illicit financial flows, using fiscal and foreign exchange reserves, managing debt, and adopting a more accommodative macroeconomic framework. Hoy and Sumner (2003) calculate the marginal tax rates on those above the $10/day and $15/day income thresholds, and possible reallocations from energy subsidies and “excess” military spending that would be needed to end poverty at the $1.90/day and $2.50/day thresholds. They find that one or a combination of these means is sufficient to end threequarters of global poverty.

Over the past decade, some governments have been finding ways to boost spending on social assistance. For example, a study of seven Latin American countries (Argentina, Brazil, Colombia, Ecuador, Mexico, Peru, and Uruguay), covering about 75 percent of the region’s population, shows that social assistance spending rose from 0.43 to 1.26 percent of GDP from 2003 to 2015 (World Bank 2018b). The increase in social assistance spending accelerated around the time of the 2008 financial crisis, despite a reduction in the rate of economic growth. In Europe and Central Asia, tracking 15 countries that represent about 60 percent of the population shows a more moderate increase in spending. The analysis suggests that in this group of countries, average spending rose from 1.2 to 1.8 percent of GDP from 2003 to 2009, and then fell slightly, to 1.6 percent in 2014. Before the financial crisis, the region seems to have reached a steady level of social assistance spending, then spending grew in response to the financial crisis, and then it converged to the prior level. For other regions, comparable data sets were not available over long periods of time. However, several countries have rolled out and increased expenditure on significant flagship social assistance programs (World Bank 2018b).

Social assistance spending is mostly financed through general revenues, but there have been innovations in financing as well, or redirecting of inefficient existing spending.17 For example, Brazil used 21 percent of a financial tax from 1997 to 2007 to finance social insurance, 21 percent to finance its conditional cash transfer program, and 16 percent for other social spending. By 2007, this tax accounted for 1.4 percent of the GDP, which was sufficient to cover the cost of the conditional cash transfer and other noncontributory social protection programs. At the same time, rural social pensions were financed by a 2.5 percent urban wage levy. Bolivia and Zambia used revenues and taxes from natural resources to fund old-age pensions and child grants. Mongolia did so as well from 2010 to 2016 and