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Public services fight inequality

This document summarizes comments on an Oxfam report about public services and inequality. It discusses several key points: 1) There is now greater discussion of inequality in policy, and the World Bank focuses on both eliminating poverty and shared prosperity. Oxfam deserves credit for consistently arguing this. 2) While the report makes a persuasive case for progressive taxation, user fees and taxes do not cover all revenue options in poor countries, which could better target resources to reduce poverty and inequality. 3) Access to some public services like healthcare and education still show steep income gradients in some countries, while other services like water show less inequality. A broader range of potential interventions should be considered. 4) Both

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Working for the Many, Public Services Fight Inequality An Oxfam Report Comments by Dean Jolliffe Comments prepared for “Fiscal Policies, Public Ser vices, and Inequality ” World Bank, April 9, 2014 The views represented in these comments are those of the author and do not necessarily ref lect the views of the World 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.
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 4
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 36 2 42 27 34 3 40 28 34 4 40 30 35 5 (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
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) 7
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
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? 9
“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: Inequality largely unchanged, but distributional effects reduced poverty between 2005 and 2010 BANGLADESH POVERTY ASSESSMENT 2012 12 Focus on inequality can mask important changes for the poor
US SNAP (Food Stamps) Example: Inequality and poverty reductions 13 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.