WHY SHOULD GOVERNMENTS INVEST IN

SOCIAL PROTECTION?

ARGUMENTS IN FAVOR OF CASH TRANSFERS

Franziska Gassmann, MGSoG/UNU-Merit

Lehrvortrag, HBRS, 15. Oktober 2014

Outline

What are cash transfers and how do they fit within a broader social

protection framework?

Link between cash transfers and economic growth and development

Evidence in support of the business case for social protection

What are cash transfers?

Non-contributory transfers

Targeted in one or the other way to poor households or individuals or

those who are vulnerable to poverty

Intended to directly support consumption and access to social services

Financed from government revenues (ev. with donor assistance)

Regular & reliable

Can be conditional or not

Examples:

social pensions, child grants, (un)conditional cash transfers, social

assistance for the poor, disability grants,

2013

In 2000: 72 developing and

emerging countries with at-scale

social protection programs

In 2013: 98 and 33 with pilots (red)

Famous examples:

Brazil: Bolsa Familia,

Namibia: social pension

South Africa: child grant

Mexico: Opportunidades

Ethiopia: Productive Safety net

(reached 7.6 mio people)

India: National Employment

Guarantee Scheme

Bangladesh: Scholarships for girls

(850,000 scholarships provided)

2000

CTs are an important pillar of a comprehensive

social protection system

Source: Gentili & Omano in Hoddinott, 2010

Why focus on cash transfers?

Overwhelming international evidence on positive impacts

Direct reduction of poverty and inequality

Improvement of human capital outcomes

Economic growth is not by definition inclusive, inequality is growing in many countries

The poorest and most vulnerable population groups may be left behind

The state has an obligation to protect its most vulnerable citizens (human right)

Cash transfers (if well-designed) are progressive and are administratively less costly than other social protection instruments

Tailor-made design (targeting, conditionality, payment level and mechanism)

Functions well in a stable economy (no shortages of food and other goods/services)

Non-contributory social protection as economic

investment

Old arguments: human rights, evidence, affordability

Paradigm shift: SP not just as a cost for the economy Source of resilience in tough times

Support for growth and productivity in good times

Mechanism for social inclusion

SP and economic growth (Alderman&Yemtsov, 2012) Building and protecting human capital, productive assets

Enhancing community assets, infrastructure

Stabilizer of aggregate demand, improving social cohesion, making reforms feasible

Supported by international evidence (Barrientos, 2012)

Pathways to economic growth

Source: World Bank, 2012

Direct and indirect returns

Household

consumption

Poverty and

inequality

Education

Health

Labour

Human

capital

Labour

productivity

Social

protection

Economic

performance

Various

instruments

Return

Direct effects

Behavioural

effects

Financing

Child

wellbeing

Livelihoods and

productive investments

Physical

capital

Spillovers and

local multiplier

Mideros, Gassmann, Mohnen 2012

Poverty reduction of SP in the EU

Caminada & Goudswaard 2008

Increase in poverty rate in the

absence of social protection

programs

and low-income countries

Effect on school enrolment Source: Baird et al. 2013 (meta analysis)

Investments in education pay back

Effect Country Source

Return to education for male wage earners:

Mean: [0.110 , 0.148]

Primary education: [0.062 , 0.094]

Secondary education: [0.060 , 0.100]

Tertiary education: [0.162 , 0.196]

Return to education for households:

Total income: [0.037 , 0.052]

Farm income: [0.069 , 0.118]

Off-farm income: [0.185 , 0.250]

Philippines

Ghana

Schady, 2000

Jolliffe, 2002

Estimating Rates of Returns for Cambodia

Household consumption

Poverty and inequality

Education

(school attendance)

Health

(underweight)

Labour participation

Human capital

Labour productivity

Social protection

Economic performance

Return

Direct (distributional) effects

Behavioural

(income) effects

Rates of Return for Cambodia final results

Effect on total household consumption through human capital accumulation, due to higher school attendance thanks to social transfers.

14.7

11.9

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

RoRC (d=2%) RoRC (d=4%) RoRC (d=6%)

Period

Final remarks

There are compelling arguments for the introduction of conditional or unconditional cash transfers in low and middle income countries

Direct impact on poverty reduction and inequality

Long-term impact on human capital development which is a key requisite for inclusive growth

Cash transfers are not the only social protection instrument

The country context is decisive in choosing the appropriate instrument

Cash transfers are a worthwhile investment as they generate positive rates of return over time

There is clearly a business case for cash transfers