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Are the poor protected from budget cuts? theory and evidence for Argentina

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  • Ravallion,Martin

Abstract

Adjustment programs often emphasize protecting social spending - especially pro-poor spending - from cuts. Yet the incidence of fiscal contraction - and hence the case for action to protect public spending on the poor at a time of overall fiscal austerity - is an empirical question, which the author addresses using data from Argentina. Aggregate budget cuts in Argentina in the 1980s and 1990s, typically brought proportionately greater cuts in social spending."Non-social"spending was protected. But proportionate cuts for types of social spending that matter more to the poor, were about the same as the cuts for those that tend to favor the non-poor. Absolute cuts were in fact greater for"social insurance"that matters more to the non-poor. But spending on targeted social assistance, and employment programs, was more vulnerable to aggregate spending cuts, than were more universal social services. Social spending was clearly exposed to fiscalcontraction, but this was somewhat less true of pro-poor spending on things that also benefited the non-poor. So fine targeting may be a mixed blessing for the poor, bringing greater vulnerability to cuts, possibly when help is most needed. There is a strong case for action to protect pro-poor social spending at such times. An externally financed work-fare scheme in Argentina was far better targeted than other social spending, but still had to ensure that a small, but relatively well-protected share of the benefits went to the non-poor. The program was clearly subject to the same political economy constraints that influenced the incidence of past fiscal contractions in Argentina. The program expanded into poor areas when the budget increased, but retreated from poor areas when the program was cut. It was the program's disbursements to non-poor areas that were protected. Still, given the low wage rate offered, the direct benefits from the program were still likely to have favored the poor, even after the cuts.

Suggested Citation

  • Ravallion,Martin, 2000. "Are the poor protected from budget cuts? theory and evidence for Argentina," Policy Research Working Paper Series 2391, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2391
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    References listed on IDEAS

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    Cited by:

    1. Pierre‐Richard Agénor, 2004. "Macroeconomic Adjustment and the Poor: Analytical Issues and Cross‐Country Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 18(3), pages 351-408, July.
    2. Ravallion, Martin, 2002. "Are the Poor Protected from Budget Cuts? Evidence for Argentina," Journal of Applied Economics, Universidad del CEMA, vol. 5(1), pages 1-27, May.
    3. Maloney, William F., 2001. "Evaluating emergency programs," Policy Research Working Paper Series 2728, The World Bank.
    4. Fabianna Bacil & Beatriz Burattini & João Pedro Lang & Camila Rolon & Merindah Loessl, 2022. "Las transferencias en efectivo con enfoque universal en América Latina y el Caribe," Research Report Spanish (Country Study) 65, International Policy Centre for Inclusive Growth.
    5. -, 2004. "A decade of social development in Latin America, 1990-1999," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 2383 edited by Eclac, May.
    6. International Monetary Fund, 2002. "Financial Crises, Poverty, and Income Distribution," IMF Working Papers 2002/004, International Monetary Fund.
    7. World Bank, 2003. "Argentina - Crisis and Poverty 2003 : A Poverty Assessment, Volume 2. Background Papers," World Bank Publications - Reports 14701, The World Bank Group.
    8. World Bank, 2005. "Household Risk Management and Social Protection in Chile," World Bank Publications - Books, The World Bank Group, number 14839.

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