How can Financing of Social Services be Pro-Poor? (Draft)

The paper deals with issues of social services financing, presenting recent good and bad experiences from various countries and contexts and assessing how progressive and solidaristic these reforms have been.
The authors conduct a brief discussion of the interactive relationship between income growth and social policy is presented. This 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 Value Added Taxes (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 International Financial Institutions 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.

This paper was prepared for the UNRISD project on Financing Social Policy.

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