Are the Poor Protected from Budget Cuts? Theory and Evidence for Argentina

Adjustment programs often emphasize protecting social spending from cuts, and protecting pro-poor spending in particular. Yet the incidence of a fiscal contraction is unclear a priori; endogenous protection of pro-poor spending is possible even when the poor are a powerless minority. The paper turns to evidence for Argentina. Historically, social spending was not protected, though more “pro-poor” social spending was no more vulnerable. While an externally-financed workfare scheme was far better targeted than other social spending, it still had to assure that a small but relatively well-protected share of the benefits went to the non-poor. This appears to be a political economy constraint.