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Social
Economic
Goal
Social Justice
Poverty/Inequality
Efficiency
Output/ GDP growth
Priority
State
Market economy
Social spending
Fundamental
Transformative
Luxury
Children/childcare
Important
Unimportant
Outlook
Personality
Dreamers
Nice Guys
Realist
Mean machines
Social Protection, Redistribution
and Economic Growth
David Piachaud
Outline
Types of social protection
Behavioural effects
Social protection and economic growth
- Human capital
- Investment
- Local economy
- Macro effects
Micro-simulation - South Africa
–Redistribution
–Economic growth
Conclusions
Types of Social Protection
Social Assistance
Aka Safety net, Minimum income guarantee, Income support,
Negative income tax
Social Insurance
Aka Contributory social security, National insurance
Categorical Benefits
Aka Universal benefits, Basic Income, Citizens income,
Demogrant
Possible behavioural effects of social protection
Negative
Discourage private protection by individual – discourage work effort, saving,
investment
Negative or positive
Effects on household formation and separation
Effects on child-bearing
Effects on survival and mortality
Effects on family and community provision
Positive
Promote private consumption, maintain aggregate demand and employment
Promote local economy
Promote investment in human capital
Promote savings and investment and allow more risk-taking
Promote social cohesion and trust in government
Possible effects on economic growth
The dismal tradition of economics
Four major reasons for hope
1. The protection and encouragement of human
capital formation
2. The encouragement of investment and
innovation
3. Promoting the local economy and using local
knowledge
4. Macro effects
The protection and encouragement of human
capital formation
Social protection may:
Keep people alive
Enable children to be educated
Enable health clinic to be reached
But little solid evidence
Conditional Cash Transfers are Social Protection with
Conditions
Some evidence on their operation and impact
Evidence
The encouragement of investment and
innovation
When consumption is minimal, reducing it so as to invest
is hard
Investment decisions of the poorest - what to plant,
when, whether to buy a tin sheet for roofing, whether to
kill a goat, whether to send a child to the city – are
critical. Far more hangs on these decisions than for
wealthy
If marginal propensity to consume declines with income
and marginal efficiency of capital declines as capital
increases, then social protection is good for investment
and innovation
Evidence
Initial production
Production
Failure
Success
Average
effect
A 100
50
150
140
B
200
100
300
280
A + Soc. Protn,
100 + 10
60
160
150
The encouragement of investment and
innovation
When consumption is minimal, reducing it so as to invest
is hard
Investment decisions of the poorest - what to plant,
when, whether to buy a tin sheet for roofing, whether to
kill a goat, whether to send a child to the city – are
critical. Far more hangs on these decisions than for
wealthy
If marginal propensity to consume declines with income
and marginal efficiency of capital declines as capital
increases, then social protection is good for investment
and innovation
Evidence
Promoting the local economy and using local
knowledge
Social protection allows people to spend on what
they want based on local knowledge potentially
aiding local economy with high local multipler
effects
By contrast, providing services provided by teachers
or doctors who live in more prosperous areas
provides little boost to local area
But if demand is for goods for which supply cannot
be increased the result may be inflation
Evidence
Macro effects
Social cohesion
Social stability
Economic stabiliser
Trust in government
Confidence in the future
Evidence
Social protection
A microsimulation of South Africa
Purpose – To review types of social protection, their
relevance, the issues for redistribution and economic
growth that they raise. Not to explore detail of income
distribution or existing social protection.
Data – National Income Dynamics Survey, 2008,
7,000 households, 28,000 individuals.
Unit of analysis – Individual
Measure of welfare – Household income per head
Poverty level – SA ‘Lower’ Standard
– Rand 515 per head per month
The problem with social insurance
Of all those in poverty:
94.6% have no regular earnings from a job
Of all working age adults:
42.7% are employed
19.0% are unemployed
38.2% are economically inactive
Policy changes simulated
Standard cost – 5% of all income – R85 pc
Social Assistance
SA1- Make-up to R450 pc, 100%withdrawal
SA2- NIT R625 pc, 50% rate
Categorical Benefit
CB1 – BIG of R85 pc
CB2- R264 per child aged 0-14
CB3- R1180 per person aged 60+
Policy changes simulated (continued)
Baseline – 5% of all income – R85 pc
F1- Tax 5% of all income
F2- Tax 6.6% of income above median
(R 545 pc)
F3- Tax 15.1% of income above top decile
(R 4108 pc)
Effect of changes by income level
Percentile
10%
25%
50%
75%
90%
95%
99%
Baseline
159
284
545
1448
4108
7125
16092
SA1– Make-up
SA2- NIT
CB1 – BIG
CB2- Children
CB3- Elders
+291
+233
+85
+65
+1
+176
+171
+85
+116
+17
+85
+117
+52
+85
+65
+212
+85
+61
+90
+85
+31
+143
+85
-
-27
-
-73
-60
-
-105
-235
-
-356
-434
-456
-804
-1026
-1809
F1- 5% on all -8
-14
F2- 6.6% above median F3- 15.1% above top decile
Effect of changes on poverty
Baseline
Proportion
in poverty
48.0%
Poverty
Gap
R 114
SA1– Make-up
SA2- NIT
CB1 – BIG
CB2- Children
CB3- Elders
48.0%
38.3%
40.7%
37.6%
45.6%
R30
R39
R76
R74
R110
F1- 5% on all
F2- 6.6% above median
F3- 15.1% top decile
49.9%
R122
No change
No change
Effect of changes on inequality
10%
Baseline
159
90% 90/10
ratio
4108 25.8
95%
99%
7125
16092
SA1– Make-up
SA2- NIT
CB1 – BIG
CB2- Children
CB3- Elders
450
391
244
224
160
4108
4108
4193
4170
4198
9.1
10.5
17.2
18.6
26.2
7125
7125
7210
7156
7268
16092
16092
16177
16092
16092
F1- 5% on all
151
F2- 6.6% above median 159
F3- 15.1% top decile
159
3903
3873
4108
25.8
24.3
25.8
6769
6691
6669
15288
15066
14282
Effect of changes on increased marginal tax rates
Increase in marginal tax rates
0%
6.6%
50%
56.6% 100%
SA1 + F2
7.4%
50%
--
--
42.6%
SA2 + F2
0%
45.6% 50%
4.4%
--
CB1/2/3 + F2
0%
50%
--
--
--
Conclusions
1 Social protection is not one entity. Clarity has been in short supply.
2 Discussing benefits without considering costs is nonsense.
3 Distributional and behavioural effects of different types of social
protection are very different.
4 At least as important as redistributional effects are effects of social
protection on economic growth. These have been largely ignored.
5 There is a need for carefully designed and monitored experiments
that will investigate positive and negative effects of social protection.
6 This must be said with caution and humility since which prosperous
nation has conducted such experiments in the past 40 years?