Cash Transfers

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					Protecting The Vulnerable: The Design and
 Implementation of Effective Safety Nets
    December 4-15, 2000 - Washington, D.C.



         Cash Transfers

            December 6, 2000
             Steven R. Tabor
• Major role in industrialized states: near universal
  insurance and assistance coverage.
• Coverage: <10% in Africa and Asia, 15-60% in
  Latin America, 20-25% in N. Africa and 50-80%
  in the transition states. Mainly insurance.
• OECD states spend 8% of GDP on cash social
  assistance;
• Few developing countries spend > 1% GDP

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• 50-80% of cash social            • Why so limited coverage
  assistance reaches the             in LDCs?
  poor in well-managed                – Fiscal constraint
  programs and 25-50% of              – Large informal sector
  social insurance reaches
  the poor.                           – Social insurance
                                        products don’t match
• Family assistance and                 Y-protection needs.
  social pensions play a
  large role in transition            – Hard to collect
  states.                               premiums
                                      – Weak administration
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• Democratization and rising inequity
• Income insecurity, shocks, crisis and global
  volatility
• Market friendly reforms have crowded-out
  distortionary “transfers”
• Trend in industrialized economies towards more
  affordable and incentive compatible cash-transfer
  programs.

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•   Categorizing Cash Transfers
•   Cash vs. In-kind transfers
•   Design Considerations
•   Building Institutional Capacity


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• Safety Net vs. Safety         • Voluntary private
  Rope Types of Cash              transfers
  Transfers                     • Long-, intermediate-
• Social Insurance and            and short-term risk
  Social Assistance               management
• Universal, Means-             • Near-cash transfers
  Tested and                    • Gross vs. Net transfer
  Employment-Related              measures
                                • Fiscal churning
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•   Assess as a package, and net of tax.
•   Spending doesn’t measure adequacy.
•   Spending doesn’t measure effectiveness.
•   Cash transfers are launched for reasons
    other than immediate poverty reduction--ie.
    equity, harmony, social solidarity. Indirect
    poverty reduction impacts may be
    substantial.
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• Economics: don’t directly          • Administration: high fixed
  distort prices,                      institutional costs &
• Lower deadweight losses              lower operating costs.
• Less excess burden                 • Administrative and
• Less adverse Y-                      financial infrastructure
  distribution effects                 arises with development.
• May play an automatic              • Can’t self-target: is no
  stabilizer function, but can         “inferior form of cash”
  lead to fiscal creep & loss        • Lower stigma attached to
  of fiscal flexibility.               receipt and use of cash.

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• Politicians may not want to fund “de-merit goods”.
• Providing basic goods to the poor helps assure voters that
  “basic needs” are being addressed.
• Commodity lobbies prefer aid linked to their products.
• Easier to explain the why a commodity subsidy is provided
  to a target group when that subsidy has been removed for
  the general public.
• In-kind programs may be linked to behavior modification,
  such as keeping children in school, that politicians wish to
  promote.
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      Design Issue 1: Matching Types of Cash
      Assistance Programs to Different Needs
• Social Insurance: Can be effective to reduce the
  poverty risk in urban, formal sector, employment
  related schemes
• Micro-insurance: can broaden the net to provide
  catastrophic coverage to those in the informal
  sector
• Social Assistance: main cash transfer safety net
  for the chronic poor
• Need to harmonize public cash assistance and
  private cash transfers
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   Design Issue 2: overcoming the beneficiary
                selection barrier
• Formal income and means tests: too costly, time
  consuming, error prone and inaccurate.
• Categorical, proxy-means and geographical targeting can
  work quite well.
• Local knowledge, in community targeting, can be tapped.
• Conditional transfers (utility offsets, education grants) can
  generate positive social outcomes while using service
  providers to screen and verify beneficiaries.
• Universal programs such as family assistance and social
  pensions are less information intensive. Impact depends on
  poverty & family size, and poverty & old-age link.
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   Design Issue 3: How generous should cash
                  transfers be?
• How is benefit generosity measured.
• Should benefits be in line with the Minimum Standards Convention?
• Need: minimum income for those who cannot earn, have savings or
  expect to receive private transfers. Poverty gap (Poverty line Y-
  earnings-net savings-private transfers) for the bulk of the poor. Gap
  likely to be well below replacement income.
• Fiscal limits: poverty gap of 2% of GDP would need transfers of 5-6%
  of GDP.
• Adverse incentive effects with many near-poor households and
  working poor.
• The need for a full-replacement income approach, fiscal affordability,
  and ability to offset adverse incentive increases as economic
  development proceeds.

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  Design Issue 4: Avoiding adverse labor
              supply effects
• Transfers impact the labor supply of those who finance and
  those who receive them.
• Poverty traps, high MERTs and rigidities are problems in
  generous systems.
• Focusing assistance on those unable to work (or work
  more) reduces adverse labor effects.
• Welfare to work-fare: are new approaches to making work
  financially attractive, rewarding welfare graduation and
  tightening access to transfers.


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      Design issue 5: Using Cash Transfers to
          Combat Gender Discrimination
• Female-headed                    • Family assistance and old-
  households face greater            age pensions can help
  poverty risk                       reverse gender bias.
• Direct discrimination in         • Social protection
  social assistance systems          legislation can be
• Indirect discrimination            reformed to remove
  because of women’s labor           gender bias.
  force role                       • Start with a gender review
• Women may make better              of the labor market,
  use of transfers                   poverty and assistance
                                     programs.
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    Design Issue 6: Securing Political Support

• The stop-and-start problem and the electoral cycle.
• Political crises give rise to new cash transfer
  programs;
• Excess political involvement can contaminate
  programs;
• Politics of narrow versus universal transfers
• Using information to build program credibility
• Stakeholders, social-partners and the incentives
  influencing decision-making
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• Is tremendous variation in the way in which cash transfers
  are administered---NO ONE RIGHT WAY!
• In many cases, cash-transfer administration is just part of
  the duties of national and local officials--may have other
  health, labor, union or welfare responsibilities.
• “public social security schemes were commonly viewed as
  inefficient public monopolies which provided poor service
  to their members… And among social security staff there
  was often low morale owing to poor conditions of service
  and inadequate training” (ILO, 2000, p.222)


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• Political interference in
  staffing & investment           • Poor terms of service
• Fragmented policy making        • Excessively complex
• Delays in processing              procedures and regulations
  claims                          • Neglect of compliance,
• Poor record-keeping               enforcement and policy
                                    research functions
• Failure to explain the
  schemes to members and          • Fiscal limits on staffing
  public                            and other recurrent costs



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• Computerization and use of cash-dispenser
  technology;
• Consolidating management, integrating programs
  and providing uniform-terms;
• Contracting-out specialist functions to the private
  sector;
• Establishing multi-pillar social assistance
  measures to tap private risk management capacity;
• Forging links with non-profit organizations
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  Recent OECD Administrative Capacity
           Building Reforms
• Use of public charters and        • Automation in record
  performance targets                 keeping and use of
• Separation of policy and            universal social-numbers
  management roles                  • Use of direct bank deposit
• Use of stakeholder and            • Anti-fraud programs
  public consultations prior        • Public awareness
  to reforming programs               campaigns
• Bench-marking                     • Monitoring, policy
  performance over time               research and advisory-
  and across countries.               panel effort to lead reform
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• The design and administration of cash transfer
  programs is central to their effectiveness in a
  social safety net.
• Programs must be matched to varying needs--
  which change over time.
• Administrative capacity needs to be built to
  manage cash-transfer programs effectively.
• Political support must be nurtured.

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