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Symposium 2009

Proposal - Fighting Against Poverty in the Crisis Aftermath - Solutions

The Challenge

Poverty reduction has become the central objective of development policy, as reflected in the United Nations’ Millennium Development Goals (MDGs). While economic growth is seen as an important ing ...

Poverty reduction has become the central objective of development policy, as reflected in the United Nations’ Millennium Development Goals (MDGs). While economic growth is seen as an important ingredient in achieving sustainable poverty reduction, the emerging consensus is that growth has to be pro-poor to reach such ambitious targets as the MDGs.

While the exact scope of inequality-reducing policies ultimately depends on country characteristics, such as the capacity of administrations to execute them and the initial level of inequality, at least some of these policies are likely to play a role in any poverty reduction strategy.

As concerns asset inequality, public investment in basic education and primary health care is almost unanimously accepted as an instrument for attenuating disparities in human capital formation. Yet even here some unresolved issues remain, e.g. whether user fees should play a role in financing the services. In addition, there appears to be a widespread consensus that governments should facilitate the poor’s access to financial assets (e.g. by subsidizing microfinance institutions) or infrastructure (e.g. by financing electricity hook-ups). Market-based land reforms, where the poor receive subsidies to buy land from willing sellers, also command broad support, but they usually have only a minor redistributive impact. Other forms of asset redistribution such as land taxes and, in particular, partially confiscatory land reforms are more contentious. While progressive land taxes could be an effective and comparatively non-distortionary means of redistributing assets, they are demanding in terms of administrative requirements. Confiscatory land reforms tend to be highly disruptive for the economies involved, even though there are some notable success stories in Asia.

In dealing with income inequality, a considerable degree of redistribution in favour of the poor can be achieved via targeted expenditure policies. This is exemplified by the success of large-scale conditional cash transfer programmes in Mexico (Progresa) and Brazil (Bolsa Escola). The scope for a progressive tax system, which would have to rely strongly on income taxation, is much more limited, especially in countries where subsistence agriculture and the informal sector account for a large share of economic activities.

Regarding policies to reduce gender and ethnic discrimination, areas of agreement are that improved access for girls and children from ethnic minorities to education as well as the removal of restrictions on the control of assets such as land and material inputs are of critical importance. More intrusive measures such as affirmative action policies for females or ethnic minorities in the labour market are controversial.

Regional disparities, in particular the rural-urban divide that is typical of many developing countries, can be mitigated through regionally targeted transfers and an emphasis on infrastructure development in remote areas, e.g. the construction of roads which connect farmers to local markets. It is less clear whether governments should pursue active regional policies by supporting specific industries, or encourage people to move away from backward regions to other areas where they can more easily be provided with basic services.

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