strategy

Increasing efficiency of public spending to alleviate poverty

Synonyms:

Improving public spending to alleviate poverty
Requiring public spending to relieve poverty

Description:

Subsidies and other public spending for the purpose of alleviating poverty need certain characteristics in order to function efficiently and effectively:< 1. The level or standard at which the service is delivered, as indicated by the unit cost of the service per beneficiary. Since poor people cannot afford expensive services, and since no developing country government can afford to provide expensive services to large numbers of people free of charge, programmes that offer basic low-cost services are likely to be of greatest effect. They will also be self-targeting, because higher income groups often seek higher standards of service.

2. Location. The poorest people tend to be concentrated either in rural areas or in urban slums. Subsidies are unlikely to reach the poorest segments of the population if they are available exclusively in urban areas. Unfortunately, the very isolation of rural areas that tends to exacerbate poverty also heightens the administrative difficulty and cost of projects designed to reach the poor in those areas. Investment in safe water, electricity, health or education for urban areas tends to involve lower unit cost than for rural areas and therefore tends to be justified on grounds of efficiency. The problem can be approached by considering how programmes are financed. Avoiding subsidies to urban services but rather relying increasingly on local taxes and user charges makes possible the achievement of both efficiency and equity.

3. The programme's ability to reach the informal sector. Government programmes which apply only to employees in the formal sector, such as social security and other public pension schemes, subsidized employee health insurance or civil service housing assistance, are not likely to alleviate the worst conditions of poverty in developing countries.

4. An explicit focus on employment and poverty alleviation in project design, as in labour-intensive rural work programmes such as rural road maintenance or in major irrigation and flood control programmes, can efficiently create many jobs for the poor. Targeted projects cost less per beneficiary family and therefore reach more families for equal cost.

Context:

Reducing poverty remains the ultimate challenge of development policy, and public finance can be a powerful tool for this purpose. At the same time, the poor often bear the biggest direct burden of imprudent policies. Public spending is the most important instrument for directly relieving poverty. Expanding the resources devoted to low-cost urban and rural infrastructure can lead to immediately improved living standards, even if they are financed through user charges. Strengthening local governments is crucial because they are usually the main providers of urban services. Subsidies targeted for the poor can be maintained even in times of fiscal austerity. In the long run, investment in human resources - including basic health care and nutrition, primary education and family planning - can significantly improve the lot of the poor and support growth in developing countries.

Implementation:

Spending on low-cost, broadly based primary education is more likely to reach the poor than spending on expensive primary education or on higher education. In Sao Paulo, Brazil, low-cost approaches to preschool childcare, which use existing community buildings and mothers as teaching assistants, can reach five times as many preschool children for a given budget as high-cost approaches, which use new buildings and only fully qualified primary teachers. The poor are more efficiently assisted through investment in basic health clinics rather than in sophisticated clinics or hospitals, in upgrading slums as opposed to building new housing, or in providing water through standpipes as opposed to individual house connections. Choose less expensive foods to subsidize can also target the poor. A study in Brazil showed that subsidies on bread or milk would benefit the relatively well-off more than the poor, while a subsidy on cassava flour would be highly progressive.

Claim:

1. Public investment should complement rather than compete with private investment. 2. Planners should concentrate on all aspects of project design so that the project is not only economically viable, but also technically, administratively and financially feasible; the policy environment should be such as to encourage efficiency. 3. Operation and maintenance funds must be adequately provided for the life of an investment. 4. Governments of developing countries must emphasize the attraction and motivation of qualified staff. 5. Government programmes to provide low-cost services or subsidies that are rigorously limited in scope and targeted to those most in need can help alleviate poverty at reasonable cost while building the human skills so important to growth. By contrast, untargeted subsidies are generally too costly and inefficient to be justified.

Broader:

Improving
Reducing poverty
Increasing efficiency

Narrower:

Financing public health interventions with substantial externalities

Facilitates:

Strengthening capacity to combat poverty
Tackling poverty through environmental health measures

Facilitated by:

Providing government subsidies

Problems:

Inefficient public spending to alleviate poverty

Values:

Poverty
Increase
Efficiency
Inefficiency
Overspending