How can Financing of Social Services be Pro-Poor?

(UNRISD) is an autonomous agency engaging in multidisciplinary research on the social dimensions of contemporary problems affecting development. Its work is guided by the conviction that, for effective development policies to be formulated, an understanding of the social and political context is crucial. The Institute attempts to provide governments, development agencies, grassroots organizations and scholars with a better understanding of how development policies and processes of economic, social and environmental change affect different social groups. Working through an extensive network of national research centres, UNRISD aims to promote original research and strengthen research capacity in developing countries. This is not a formal UNRISD publication. The responsibility for opinions expressed in signed studies rests solely with their author(s), and availability on the UNRISD Web site (http://www.unrisd.org) does not constitute an endorsement by UNRISD of the opinions expressed in them. No publication or distribution of these papers is permitted without the prior authorization of the author(s), except for personal use. Summary In the first part, a brief discussion of the interactive relationship (synergy) between income growth and social policy is presented. Our model of synergy leads to a set of pro-poor recommendations which explicitly integrate economic and social policies. Social services financing is a critical link between economic and social policies; however, the paper argues that social policies alone cannot be pro-poor; economic policies must be complementary and reinforce that objective. Recent good and bad experiences on financing social policy are presented from various countries and assessed in terms of how progressive and solidaristic they are. From this perspective, recent trends are not very encouraging. Since the inception of structural adjustment programs, there has been a push towards VATs (and other indirect taxes). Indirect taxes are not pro-poor sources of revenue for social polices. Nevertheless, not all reforms have had negative effects. In particular, within the last ten years or so, there has been a growing recognition among policy-makers on the detrimental effects of user fees. Countries should be encouraged to implement direct progressive taxes. The United Nations and the IFIs should take a leading role in terms of capacity building in this area. Donors should help foot the bill in terms of training and the required infrastructure to ensure compliance with these taxes.