Working for the Many, Public Services Fight Inequality

An Oxfam Report

Comments byDean Jolliffe

Comments prepared for “F isca l Po l i c ies , Pub l ic Serv ices , and Inequa l i t y”Wor ld Bank , Apr i l 9 , 2014The v iews represented in these comments are those o f the author and do not necessar i l y refl ec t the v iews o f the Wor ld Bank .

The debate has changed

• In rich and poor countries, inequality is now part of policy discussions

• At the World Bank, sharing in prosperity is now twinned with eliminating poverty

• Oxfam and others, who have consistently argued this point, deserve much positive credit

• Paper is a persuasive case for action, with singular prescription

Critique of user fees

• Well referenced, detailed critique

• The proposed solution: progressive taxation

• But how? In how many poor countries is participation in the formal tax system sufficient?

• User fees and income taxes don’t exhaust revenue options. Many poor countries accrue significant revenues from extractive industry, and other sources. These resources could be better targeted to reduce poverty and inequality.

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Health and Education: Are they equally effective?

• Health self assessments in poor countries can have a negative income gradient. The poor sometimes report less frequency of being sick (even when observationally more frequently sick).

• Free, universal healthcare doesn’t always result in free and universal coverage.

• => Even in the presence of free basic health provisions, there can be steep income gradient in access to health care

Afghanistan: Antenatal care by quintile

PC quintile Antenatal care (%)

1 (poorest) 24

2 29

3 38

4 42

5 (richest) 57

Total 37

Despite inclusion of antenatal care in Basic Package of Health Services, there is a steep income gradient in take up (true of healthcare access generally)

Afghanistan: Access to Education

2007/08 Net primary enrollment of children aged 6-9

PC quintile Boys Girls Total

1 (poorest) 41 31 362 42 27 343 40 28 344 40 30 355 (richest) 51 40 46 Total 43 31 37

In stark contrast, no income gradient for 80% of children

Cautionary note: Gender gap has increased with more investment in schooling

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Why Healthcare & Education?• Many candidate public service interventions, why no

discussion of potentially more inequality reducing interventions?

• Clean Drinking Water

• Sanitation

• Electricity

• Roads …connecting the remote and poor

• Telecommunications

• Many other public services, potentially more ‘inequality busting’ than healthcare and education (think point of delivery). And, why not place value on traditional pro-poor programs (e.g. FFW, public works)

Afghanistan, Access to Clean Water

Source: Afghanistan National Reconstruction and Vulnerability Assessment, 2007/08

PC quintile Urban Rural Total

1 (poorest) 39 18 19

2 40 18 19

3 48 19 22

4 49 20 26

5 (richest) 66 21 43

Total 58 19 27

In rural areas, largely community-based, serves all

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Should we think more broadly about ‘virtual income’?

◦ How to value reducing exposure to negative shocks?

◦ Ethiopia Early Warning Systems,

◦ Should we not place more value of reducing chance of extreme outcomes?

“Boosting shared prosperity”

Shared prosperity: Average income of bottom 40%

We’re interested in the growth rate of this statistic.

Simplicity,

Shifts focus (contrast w GDP),

Some historical merit to 40.

Bank focus on “boosting shared prosperity”

So,

“…double imperative for governments: to ensure progressive taxation that can redistribute once when collected and again when spent on these inequality-busting public service services.” (Oxfam)

The shared prosperity view aligns strongly with the latter, but not with the view that there is inherent value in taking away money from the rich.

Bangladesh Poverty Assessment 2012 12

Bangladesh: Inequality largely unchanged, but distributional effects reduced poverty between 2005 and 2010

Focus on inequality can mask important changes for the poor

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US SNAP (Food Stamps) Example: Inequality and poverty reductions

Focus on inequality can mask important changes for the poor

2012 CPS Income

Income + SNAP value

% change

Gini (2011) 0.477 0.470 1

Poverty Severity (2011)

0.052 0.042 19

If SNAP were assessed on how well it redressed inequality, it would have failed.

As it stands, SNAP is highly efficient in targeting severe poverty and one of the most important programs in the US for poverty mitigation.

Bank focus on eliminating extreme poverty

• Ravallion (2013, WPS6325) projects poverty reductions under a series of assumed growth rates, based on 2008 inequality levels.

• The required growth rate is 1 percentage point less if inequality is at levels observed in 1999.

• Current growth rates + no reductions in inequality ≠ 3%.

• Current growth rates + reductions in inequality => 3%.

• Achieving the twin goals requires attention to distributional issues.