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Quantifying the Impacts of Expanding Social Protection on Efficiency and Equity: Evidence from a Behavioral Microsimulation Model for Ghana

Author

Listed:
  • Robert D Osei

    (Institute of Statistical, Social and Economic Research (ISSER), University of Ghana.)

  • Jukka Pirttilä

    (University of Helsinki and VATT Institute for Economic Research, Helsinki, Finland. UNU-WIDER, Helsinki, Finland.)

  • Pia Rattenhuber

    (UNU-WIDER, Helsinki, Finland.)

Abstract

A key challenge facing developing countries when they are gradually building up their social protection system is the presence of a large informal sector. Social safety nets should be expanded to reduce poverty, but financing social protection through higher taxes may reduce the number of formal-sector jobs available. The aim of this paper is to quantify the impacts of a revenue-neutral expansion of social protection in a developing country on both income distribution and efficiency which we measure via the impacts on formal sector work. Results from a new tax-benefit microsimulation model for Ghana, GHAMOD, are combined with the extensive margin elasticity of the share of formal work with respect to the tax wedge on formal labour, derived from repeated cross-section econometric estimates. The size of the estimated formality elasticity is modest and therefore the distributional gains of expanding cash transfer programmes are considerable, even when taking into account behavioural impacts.

Suggested Citation

  • Robert D Osei & Jukka Pirttilä & Pia Rattenhuber, 2019. "Quantifying the Impacts of Expanding Social Protection on Efficiency and Equity: Evidence from a Behavioral Microsimulation Model for Ghana," International Journal of Microsimulation, International Microsimulation Association, vol. 12(1), pages 105-123.
    • Handle: RePEc:ijm:journl:v:12:y:2019:i:1:p:105-123
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    References listed on IDEAS

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    1. Palviainen, Heikki, 2019. "Changing Nordic model? A policy analysis," EUROMOD Working Papers EM15/19, EUROMOD at the Institute for Social and Economic Research.

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    More about this item

    Keywords

    DEVELOPING COUNTRIES; SOCIAL PROTECTION; TAX-BENEFIT MICROSIMULATION; SOUTHMOD;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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