Designing Fiscal Redistribution The Role Of Universal And Targeted Transfers

There is a growing debate on the relative merits of universal and targeted social assistance transfers in achieving income redistribution objectives. While the benefits of targeting are clear, i.e., a larger poverty impact for a given transfer budget or lower fiscal cost for a given poverty impact, in practice targeting also comes with various costs, including incentive, administrative, social and political costs. The appropriate balance between targeted and universal transfers will therefore depend on how countries decide to trade-off these costs and benefits as well as on the potential for redistribution through taxes. This paper discusses the trade-offs that arise in different country contexts and the potential for strengthening fiscal redistribution in advanced and developing countries, including through expanding transfer coverage and progressive tax financing.

Fiscal policy is a key tool for achieving distributional objectives in advanced economies. This paper embeds the discussion of fiscal redistribution within the standard social welfare framework, which lends itself to a transparent and practical evaluation of the extent and determinants of fiscal redistribution. Differences in fiscal redistribution are decomposed into differences in the magnitude of transfers (fiscal effort) and in the progressivity of transfers (fiscal progressivity). Fiscal progressivity is further decomposed into differences in the distribution of transfers across income groups (targeting performance) and in the social welfare returns to targeting due to varying initial levels of income inequality (targeting returns). This decomposition provides a clear distinction between the concepts of progressivity and targeting, and clarifies the relationship between them. For illustrative purposes, the framework is applied to data for 28 EU countries to determine the factors explaining differences in their fiscal redistribution and to discuss patterns in fiscal redistribution highlighted in the literature.

Targeting is a commonly used, but much debated, policy tool within global social assistance practice. Revisiting Targeting in Social Assistance: A New Look at Old Dilemmas examines the well-known dilemmas in light of the growing body of experience, new implementation capacities, and the potential to bring new data and data science to bear. The book begins by considering why or whether or how narrowly or broadly to target different parts of social assistance and updates the global empirics around the outcomes and costs of targeting. It illustrates the choices that must be made in moving from an abstract vision to implementable definitions and procedures, and in deciding how the choices should be informed by values, empirics, and context. The importance of delivery systems and processes to distributional outcomes are emphasized, and many facets with room for improvement are discussed. The book also explores the choices between targeting methods and how differences in purposes and contexts shape those. The know-how with respect to the data and inference used by the different household-specific targeting methods is summarized and comprehensively updated, including a focus on “big data†? and machine learning. A primer on measurement issues is included. Key findings include the following: · Targeting selected categories, families, or individuals plays a valuable role within the framework of universal social protection. · Measuring the accuracy and cost of targeting can be done in many ways, and judicious choices require a range of metrics. · Weighing the relatively low costs of targeting against the potential gains is important. · Implementing inclusive delivery systems is critical for reducing errors of exclusion and inclusion. · Selecting and customizing the appropriate targeting method depends on purpose and context; there is no method preferred in all circumstances. · Leveraging advances in technology—ICT, big data, artificial intelligence, machine learning—can improve targeting accuracy, but they are not a panacea; better data matters more than sophistication in inference. · Targeting social protection should be a dynamic process.

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The International Monetary Fund’s engagement on social safety net (SSN) issues is likely to expand as member countries respond to growing challenges in the economic and fiscal landscape. SSNs play a crucial role in protecting households from poverty, promoting inclusive growth, and maintaining social stability. This technical note discusses (1) the different channels through which SSN spending may become macro-critical, (2) how to assess the importance of these channels, and (3) the types of policy responses that are appropriate and the trade-offs involved in choosing among them. To facilitate a more comprehensive assessment of SSN spending, the paper also examines the complementary role of labor market programs (for example, unemployment benefits and active labor market programs). The paper emphasizes the importance of early engagement and coordination with development partners with expertise on social safety nets and with different stakeholders when formulating policy advice.

Examining the increasingly relevant topic of public sector efficiency, this dynamic Handbook investigates the context of constrained fiscal space and public funding sources using cross-country datasets in areas including China, India and sub-Saharan Africa and OECD economies.

This paper provides an overview of the design of means-tested Guaranteed Minimum Income schemes, which constitute an important component of social protection systems in European countries. It discusses how key design features differ across countries, including how countries balance the primary objective of poverty alleviation against the desire to both manage the work disincentives inherent in such programs and contain fiscal cost. The analysis finds a clear trade-off between both concerns in practice, with many countries combining low generosity with low benefit withdrawal rates (BWRs) thus prioritizing employment incentives over the primary objective of poverty alleviation. Many countries can reduce this trade off by combining higher generosity with higher BWRs. Countries with very high BWRs should consider reducing these, including through allowing income disregards and time dependent (rather than income-dependent) benefit withdrawal. The work disincentives associated with higher BWRs can also be attenuated through strengthening complementary activation policies that incentivize and support participation in the labor market.

The April 2021 edition of the Fiscal Monitor focuses on tailoring fiscal responses to the COVID-19 pandemic and adopting policies to reduce inequality and gaps