CONDITIONAL & UNCONDITIONAL CASH …

1 Kat hy L i n de r t , Wo rl d B an k So c i al Safet y N et s Co re Co ur s e De c e m b e r 2 01 3 CONDITIONAL & UNCONDITIONAL CASH TRANSFERS 1 OUTLINE What, Why, and When to Use Cash? Types of cash transfer programs Design & Implementation 2 3 WHAT ARE CASH TRANSFERS? C a s h t r a nsfer p rograms p rov i d e c as h as s i s t anc e to t h e p oor a nd c e r t a i n v u l ne rable g ro u p s wo u l d c o u l d f a l l i nto p ove r t y O b j ec tives : Increase the incomes of the poor Help individuals and families cope with the consequences of shocks Facilitate government reforms ( , consolidation of other social programs; compensator y measures for other reforms such as energy subsidies) WHY CASH? Ef fective (supply-side factors). Can be cheaper vehicle to deliver benefits than in-kind benefits ( , food) choice (demand-side factors). Because cash doesn t distort consumer preferences or presume to know what the individual families need.

2 4 When is Cash Appropriate? Situations of Chronic Pover ty Situations of Shocks Emergencies with adequate food supply Transitory shocks When deliver y of benefits feasible: Poor can access financial facilities (permanent or mobile) Food is available When is Cash Inappropriate? When supply of essential goods disrupted ( , war s, natural disaster s) When administrative targeting is not possible Shallow financial markets (hard to move cash) When safety net is funded with in-kind contributions ( , food aid) 5 WHEN & WHEN NOT TO USE CASH AS PART OF THE SAFET Y NET OUTLINE What, Why, and When to Use Cash? Types of cash transfer programs Design & Implementation 6 Pove r t y-Ta r g e te d P ro g r a m s ( Last Resort Programs ) UNCONDITIONAL Cash Transfers (UCTs) CONDITIONAL Cash Transfers (CCTs) 7 T YPES OF CASH transfer PROGRAMS C a te g o r i c a l P ro g r a m s : Social Pensions (non-contributor y pensions to the elderly) Disability assistance Family & child allowances (Unemployment assistance) Near Cash Benefits: Food stamps Other vouchers Objectives: Guarantee a minimum income for poor households below an income threshold Benefit levels: Generally equal to the difference between monthly household income and the threshold, but var y according to household size UNCONDITIONAL (usually no co-responsibilities) Coverage: A safety net for the poorest.

3 In practice, most cover less than 5% Targeting: Usually based on income and asset testing by social workers through social welfare offices Complementary to other social protection (pensions, unemployment benefits, family allowances) 8 TARGETED CASH TRANSFERS: GUARANTEED MINIMUM INCOME PROGRAMS (GMI) E X A MPLES: M o s t O E C D c o u n t r i e s M o s t E C A c o u n t r i e s ( E U n e w m e m b e r s t a t e s , C a u c u s e s , B a l ka n s ) S o m e L I C s : ( e . g . , Ky r g y z Re p u b l i c , M o l d o v a ) C h i n a (D i b a o p r o g r a m ) GMI PROGRAMS: SIMPLIFIED ILLUSTRATION OF BENEFIT S CALCULATIONS 9 Minimum Subsistence Level of Income Actual pre- transfer income Benefits vary by distance to minimum subsistence level .. There are many ways to complicate a program 10 TARGETING ACCURACY OF GMI PROGRAMS IN ECA (LRSA) Source: world bank estimates from ECA SPEED database (2013) Usually very well targeted (but also with very low coverage) TARGETED PROGRAMS: CONDITIONAL CASH TRANSFERS Tw i n o b j e c t i ve s : Immediate poverty relief through provision of cash transfers Long-term poverty reduction by linking transfers to incentives for investments in human capital (co-responsibilities) P r i n c i p l e o f S h a r e d Re s p o n s i b i l i t y Give cash stipend to the poor Poor need to ensure they carry out co-responsibilities Ta r g e t i n g : Usually means-tested or proxy means-tested Often in combination with geographic targeting B e n e f i t l eve l s an d c ove r a g e var y 11 EXAMPLES: Most countries in LAC Several countries in East Asia & South Asia Several countries in Africa Several countries in ECA Several OECD countries 12 CCTs.

4 MENU OF CO-RESPONSIBILITIES ( S O M E E X A M P L E S P R O G R A M S V E R Y D I V E R S E ) *All LAC countries with CCTs *Macedonia, Romania, Turkey *Cambodia, Pakistan, The Philippines *Kenya Education (Enrollment, School attendance) * , Brazil, Chile, Colombia, Ecuador, Honduras, Jamaica, Mexico, Panama, Peru * Kazakhstan, Turkey * The Philippines Health Visits (prenatal, vaccines, child growth) *Chile Solidario (tailored family contract; meetings with social workers) *Colombia, Mexico, Panama (workshops) *The Philippines (Family Development Sessions) Participate in Workshops / Sessions with Promotores Often as complementary services (not conditions) *Brazil, Mexico, Ecuador *Kazakhstan *India, China Productive Activities / Other CCTs HAVE SPREAD TO OVER 40 COUNTRIES AROUND THE world WHY? 1997 2010 Countries with CONDITIONAL Cash transfer Programs 13 Why So Popular? A mong t h e mos t s t u d ied of al l s oc i al p rog rams H u nd re ds o f s t u d i es, i nc l u ding a c a d emi c W i d espread m e d i a s c ru t i ny PROVEN RESULTS: CCTS HAVE BEEN EXTENSIVELY EVALUATED 14 15 PROVEN RESULTS OF CCTS: SUMMARY OF IMPACTS Social Inclusion Poverty & Inequality Impacts Education Impacts Labor + Positive Economic Incentives Food, Nutrition, Health Impacts Encouraging effects on Early childhood Development Extensive coverage in many cases Bringing poor to formal economy, identity & use of services Good targeting accuracy (high share of benefits to poor) Strong in many countries Redistributive impacts depend on size of transfer , coverage of poor enrollment, attendance (bring the kids to school) drop-out (keep them in school longer) But less evidence of impacts on learning & test scores (supply-side issue.)

5 Quality of education system) Substantial reduction in child work Modest or no impacts on adult work effort (may LFP) Households invest part of the transfer (income-generating) Improvements in receptive language (Nicaragua) Memory gains (Ecuador) Socio-Emotional (Ecuador) Fine Motor Skills (Ecuador) Some evidence of impacts on malnutrition & food cons. More use of health services, especially among poorest Some evidence of lower morbidity & reduced child mortality Some evidence of higher detection of breast cancer & diabetes Tot al c o s ts o f C C Ts : About of GDP for larger programs CCTs often replace more expensive, badly targeted programs (fiscal consolidation) Countries spend far more on regressive programs: , 4% of GDP on deficits in pension systems (which largely benefit higher-income people) A d minis t rat ive c o s t s : Around 10-12% for most mature, large CCT programs Start-up costs can be much higher: For example, in Mexico, administrative costs of beneficiar y selection fell from 61% in first year (1997) to 3% in 2001.

6 PROVEN RESULTS OF CCTs: FOR A RELATIVELY LOW COST 16 P h i losop hical a p p eal for social compact along the political s p e c t rum but with nuanced interpretations POLITICAL APPEAL OF SHARED RESPONSIBILITY B road p ol it ic al s u p por t for C C Ts by p ar t i es al ong p ol i t ic al s p e c t rum i n m a ny c o u nt ri es : CCTs introduced & supported across political parties & changes in administration in Brazil, Mexico and elsewhere Left: Social debt to the poor Structural impacts on poverty Conditionalities as basic rights Right: Not so expensive (cost/GDP) Not just a cash handout Conditionalities as contracts 17 CCTs viewed as less assistencialista by both sides Window of opportunity for other reforms with impor tant role for fiscal consolidation: Consolidating social programs (BR Bolsa Familia, Romania) Replacing less efficient in-kind transfers (Mexico) Facilitating reduction or consolidation of energy subsidies (Brazil, Indonesia, Moldova, etc.)

7 CCTs can help integrate & coordinate social policy: Boosting demand for health & education Enhancing focus on need for improving service quality (supply-side) Linking to other complementary services 18 ANOTHER ATTRACTION OF CCTs: CONSOLIDATING & COORDINATING SOCIAL Objectives: To e n s u r e b a s i c o l d-a g e s e c u r i t y f o r t h o s e n o t c ov e r e d by t h e c o n t r i b u to r y p e n s i o n s y s te m Eligibility: Va r i e s . U n i v e r s a l f o r a l l e l d e r l y o r t a r g e te d to p o o r e l d e r l y Financing: m o s t l y f i n a n c e d by g e n e r a l t a x r e v e n u e s Benefit level & Incentive Compatibility: Setting appropriate benefit level is important: If high relative to minimum contributor y pensions undermines incentives to contribute (Uruguay case) If too low, won t contribute to poverty alleviation, admin costs become large share of total (Argentina, Turkey) 19 CATEGORICAL BENEFITS: SOCIAL PENSIONS EXAMPLES: OECD Countries (Australia, New Zealand, Canada) Africa (SA, Namibia, Mauritius, Botswana) South Asia (India, Bangladesh, Nepal) LAC: many countries ECA: most Univer sal social pensions B ol iv ia p rov i d es a un iver sal s o c i a l p e ns i o ns ( fi xe d c a s h t ra ns fer) to a l l c i t i z ens ove r 6 5.

8 M u lt ip le o bje c tives: to ret u rn t h e e qu i t y i n t h e p ri vat ized s t a te e nte rpris es to t h e p e o p l e, to c ove r t h e l a rg e m a j o ri ty o f e l d erly not c ove red by t h e p e ns i on p rog ram, and to h e l p re d u ce p ove r ty. T h e p ro g ra m c o s t s a b o u t 1 % o f G D P a nd c ove r s 0 . 7 % o f t h e p o p u lat io n. G e o rgia i s a not h e r exa mple. Targeted social pensions S o u th A f rica o l d-a ge p e ns i o n c ove r s al l wome n ab ove 6 0 and me n ab ove 6 5 , s u b j ec t to a m e a ns-tes t . T h e p ro g ra m c ove red a b o u t 4 . 2 % o f t h e p o p u lat io n a nd i s f u nd e d t h ro u g h g e ne ral t a xe s . T h e tot a l p ro g ra m ex p e ndit ure i s a b o u t 1 . 4 % o f G D P i n 2 0 0 0 . Impact: Incidence of poverty; Health status of children and older people; Enrollment rates of school age children 20 SOCIAL PENSIONS: EXAMPLES CATEGORICAL BENEFITS: DISABILIT Y ASSISTANCE 21 Objectives: To p r o v i d e c a s h a s s i s t a n c e to t h e d i s a b l e d a s a v u l n e r a b l e g r o u p f o r t h o s e n o t c o v e r e d by d i s a b i l i t y i n s u r a n c e Eligibility: Va r i e s.

9 U n i v e r s a l f o r a l l d i s a b l e d o r t a r g et e d to p o o r d i s a b l e d . T h i s r a i s e s t w o l ev e l s f o r s c r e e n i n g : Disability ce r tification. Classification of disability, institutional set-up / roles, time limits for recer tification, etc. Me ans-testing / Screening based on (pover ty) need (Also sometimes focused on disabled children categorically) Financing: m o s t l y f i n a n c e d by g e n e r a l t a x r ev e n u e s Benefit level & Incentive Compatibility: S e t t i n g a p p r o p r i a te b e n e f i t l ev e l i s i m p o r t a n t If high relative to disability insurance undermines incentives to contribute If high relative to other social assistance benefits, incentives to get certified for disability benefits EXAMPLES: Most OECD Countries ECA: most countries LAC: ( , Brazil Chile, Uruguay, Barbados, Bermuda, Trinidad and Tobago) Hong Kong (China) Africa: Liberia, South Africa OPERATIONAL DEFINITIONS OF DISABILIT Y FUNCTIONAL VS MEDICAL CRITERIA Definition Advantages Disadvantages Functional.

10 Degree of Inability to work Conceptually appropriate Consider full set of medical and other circumstances Sensitive to context (accessibility of transportation, buildings, types of jobs, etc.) More complex to implement Possible discretionary decisions Moral hazard Medical: Based on official list of impairments or diagnoses Simpler to guarantee equal treatment of people with same conditions Easier to verify Does not recognize differences in severity Does not recognize interactions among multiple conditions Lists can be politically difficult to agree on 22 I N T E R P L AY B E T W E E N D I S A B I L I T Y B E N E F I T S A N D TA R G E T E D S O C I A L A S S I S TA N C E : A L B A N I A E X A M P L E Cove rag e : i n c re as i n g fo r DB , de c re as i n g fo r SA (N E ) B e n e fi t l eve l s : DB 3 t i me s > SA (N E ) E x pe n di t ur e s o n DB c rowdi n g o ut SA M o ral h az ard? 23 Social Assistance Spending (%GDP) Ndimhe Disability Care OtherPoverty-targeted social assistance (Ndimhe Ekonomike) Disability assistance benefits Multiple Objectives: Support families to reduce child-raising costs Child protection objectives (reduce abandonment potential) Support to orphans Pro-fertility policies ( , Birth allowances in ECA) Eligibility: Varies significantly.