Financing social protection remains a key constraint in developing countries. This project focuses on two alternative public finance approaches, and the related political economy factors, that can facilitate the financing of social protection systems:
- taxation of consumption and natural resources
- income and payroll taxation.
This is a component of a larger research project ‘The economics and politics of taxation and social protection’ that sheds light on the system-wide impacts of social protection and tax systems in developing countries.
Determining how best to publically finance social protection involves important political economy considerations
Shifting public expenditure towards social protection through taxations of consumption and natural resources, and sustaining its political legitimacy is difficult if it implies big losses for companies. On the other hand, redistribution approach via income and payroll taxation could reduce work incentives for marginal workers, and taxes on non-labour income may reduce incentives to save. Tax payers would be more willing to finance social protection if they were direct beneficiaries of such reforms.
The project looks at these important political economy considerations and generates model predictions under heterogeneous societal conditions. This research improves understanding about which features foster successful adoption of social protection reforms.
SAPI database aims to expands data collection efforts
To facilitate the research, a new database on Social Assistance, Politics and Institutions (SAPI) was generated. SAPI provides a synthesis of longitudinal and comparable information on social assistance programmes in developing countries, and country-level information on economic and social performance and political institutions.