1

Commitment to Equity (CEQ):A Diagnostic Framework to

Assess Governments’ Fiscal Policies

Nora LustigDept. of Economics, Tulane University

Non-resident Fellow, CGD & IADWorld Bank, Washington DC, March 3,

2011

2

Background• Joint project Inter-American Dialogue and

Tulane University’s CIPR and Economics Dept.• Develop diagnostic and ranking tools to

quantify, compare, and publicize the extent to which Latin American governments use fiscal policies to reduce poverty and inequality

• Financial Support from the Canadian International Development Agency (primary funder), the Norwegian Ministry of Foreign Affairs, the United Nations Development Programme’s Regional Bureau for Latin America and the Caribbean, and the General Electric Foundation

Presentation Outline

• Motivation• CEQ Assessment

– methodological framework – questionnaire – indicatorsLustig (2011)“Commitment to Equity (CEQ): A Diagnostic Framework

to Assess Governments’ Fiscal Policies .” (distributed)

• Pilot studies: preliminary results– Argentina (Carola Pessino, Univ. Torcuato di

Tella, 2011)– Mexico (John Scott, CIDE & CONEVAL,

2011) 3

4

Inequality, Poverty and Fiscal Policy in LA

• Thanks to the expansion of education, macro stability and monetary transfers, inequality and poverty have been falling since approx. 2000

• However, – Latin America is still relatively very unequal– extreme poverty is too high for its level of

per capita GDP– redistributive power of the state through

fiscal policy is grossly underutilized

Inequality has been declining: 2000-2009 (Annual Change in Gini; Lopez-Calva & Lustig, 2011)

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-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

-1.71-1.49

-1.31-1.29-1.27-1.07-0.99-0.97

-0.77-0.66-0.36

-0.24-0.05

0.05 0.080.28

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0.30 0.25

Ann

ual P

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Poverty has been declining: headcount ratio 1995-2009 (IDB,

2011)

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Latin America’s Relatively High Inequality (IDB, 2011)

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Latin America’s Excess Poverty (IDB, 2011)

8

Latin America and Europe: Disposable Income (After Taxes and Transfers) and Market Income (Pre-Taxes and Transfers) Inequality

(Gini Coefficients) Source: Lopez and Perry (2007), p. 18.

9

Europe after

taxes & transfer

s

Europe before taxes & transfer

s

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Fiscal Policy: Little Redistribution and Poverty Reduction

• Before direct taxes and monetary transfers Gini for LA is 13 percent higher than the European average while disposable income Gini is 60 percent higher in LA:– Caveat: estimate assumes away behavioral responses (in

Europe, pensions are a large portion of transfers)– Includes only monetary transfers which are a relatively

small share of transfers; in-kind transfers are more frequent

• Adding in-kind transfers (spending on education and health), the redistributive impact for LA is larger than for monetary transfers but still limited. – Incidence analysis finds a fairly flat distribution of social

spending across income quintiles in Latin America

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Objectives of the welfare state as threefold (Nicholas

Barr,2004) :

1.support a minimum living standard

2.reduce income inequality3.enhance efficiency

12

Supporting a minimum living standard, in turn

poverty reduction: ensuring that everyone has a minimum level of consumption

insurance: preventing individuals from falling (or falling further) below the minimum level of consumption due to adverse shocks, both idiosyncratic (unemployment, illness, bad harvests, etc.) and systemic (economic crises, natural disasters, spikes in food prices, etc.)

income smoothing: ensuring that a minimum level of consumption is achieved throughout an individual’s life-cycle (maternity/paternity leave and retirement, in particular)

We added:building poor people’s human capital: ensuring that

everyone has a minimum level of education and health.

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Governments can support a minimum living standard through four main

channels:

• taxes and transfers (fiscal policy) • non-budgetary/regulatory interventions • redistribution of assets • interventions that change the

distribution of voice and power among different groups in society and alter cultural norms.

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Supporting a minimum living standard

Government actions will affect living standards through growth and distribution, either by their effect on market (primary) incomes and/or post-fiscal (after net transfers) incomes

Develop an instrument that confines the assessment of government actions on post-fiscal incomes

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What is the Commitment to Equity Assessment?

• A diagnostic framework to evaluate:

– how aligned fiscal policies are with supporting a minimum living standard

– in ways that reduce inequality and are broadly consistent with macroeconomic stability, microeconomic efficiency and growth

What is the Commitment to Equity Assessment?

• CEQ is an analytical exercise; has similarities to Hausmann, Rodrik and Velasco’s growth diagnostics. HRV (2006)

• Focuses on government efforts rather than outcomes

• Relies significantly on primary sources of information and research

• Based on “hard” data and not perceptions

• Ideal component of Country Programming exercises, Poverty Assessments, Public Expenditure Reviews, PRSPs

CEQ evaluates efforts based on whether governments:

• collect and allocate enough resources to support a minimum living standard for all

• collect and distribute resources equitably • ensure spending is fiscally sustainable

and that programs are incentive compatible

• collect and publish relevant information as well as are subject to independent evaluations

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What can CEQ Assessments be used for?

• To inform governments of how their public finances affect their equity goals

• Recommend practical measures • Enhance accountability and transparency

through better data collection and evaluation systems

• Participatory budgeting processes • Non-governmental social observatories • Construct performance indexes to rank

countries and monitor their performance over time

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What can CEQ Assessments be used for?

• In the case of Heavily Indebted Poor Countries (HIPC) and very poor countries more broadly, CEQ can inform donors:– orders of magnitude of resource

shortfalls to achieve certain goals (for example, reducing poverty by half and universal coverage of primary education)

– actual use and ability of foreign aid to help achieve equity goals

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Why CEQ would be useful for WB?

• WB through lending program affects the level and composition of public expenditure and revenue

• As an institution, one would like to know where you have the highest pay-off in terms of poverty and inequality reduction

• Evidence-based dialogue with the authorities in the country regarding the bank’s strategy in the country

• Mapping of a strategy onto specific operations

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CEQ Assessments • Tell you:

–what the problems are–where the problems are–how big the problems are

• Not a substitute for impact evaluation of specific programs

• Help you identify priorities; which in turn helps you select interventions; but the interventions will still have to be evaluated

• You will still need ex-ante designed impact evaluation components in your projects

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CEQ: Dianostic Framework

• Main question: Does a government make substantial efforts to support a minimum standard of living and build the human capital of the poor?

• Define “substantial effort:” when the after net transfers income and human capital poverty gaps are “close to” zero

• “Close to” zero is defined in comparison to the average after net transfers poverty gaps in the countries where the latter is the lowest.

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Suppose, as in most developing countries, that the poverty gap is not

close to zero • In searching for the causes, we follow a logical

sequence that will help us to identify the contributing factors and binding constraints.

• In middle-income countries, insufficient total fiscal resources are not likely to be a cause for not bringing the poverty gaps close to zero.

• One possible cause is that within redistributive spending, fiscal resources devoted to the poor are not enough. There are at least three main reasons: – benefits to the non-poor are too high– coverage of the poor is not universal– average per capita transfers to the poor fall

short

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Dianostic Framework• In turn, for example, insufficient coverage could

be caused either by design--that is, the range of existing programs leave some groups out intentionally (for example, undocumented immigrants are not eligible to receive any transfers)--or “true” errors of exclusion.

• The latter could be caused by failures in design or implementation, clientelistic politics, geographic isolation, high administrative costs, leakages, lack of accrediting documentation, self-selection, or other factors.

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CEQ: Diagnostic Framework

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Policy Instruments Considered

• Monetary transfers • Subsidies to consumption goods and

(some) inputs • In-kind transfers through the fully or

partially subsidized provision of goods and services particularly in the area of education and health

• Taxes on income, consumption and assets (including tax expenditures)

CEQ: What form does it take?

• A questionnaire whose underpinning can be found in:– Economics of the welfare state – Best practices in quality assurance and

accountability• Indicators derived from standard poverty and

inequality analysis, fiscal incidence analysis and public finance

• It uses ‘static’ incidence analysis; it does not include behavioral responses or general equilibrium effects (but they could be incorporated) 27

CEQ: Data requirements

• Household (Income/Expenditure)Surveys

• Detailed public sector accounts• “External” information on

macroeconomic sustainability, cost effectiveness, program evaluations, data accessibility and accountability mechanisms

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CEQ: Indicators

• Calculate market, disposable, post-fiscal and final income (described below)– Imputation methods for in-kind income (health and

education services provided by government free or quasi free)

– Estimation of impact of indirect taxes (including tax expenditures) and subsidies requires consumption data at the household level

• Government Revenues and Redistributive Spending

• Calculate poverty gaps• Estimate/calculate incidence of public revenues

and spending 29

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Definitions of Income Concepts: A Stylized Presentation

Market Income = ym Earned + unearned market

incomes (monetary and non-monetary) before government taxes and transfers of any sort

TRANSFERS TAXES

Direct monetary transfers

Net Market Income= yn

Disposable Income = yd

Direct taxes and employee contributions to social security

−

+

Indirect subsidies (including indirect tax expenditures)

+ − Indirect taxes

Post-fiscal Income = ypf In-kind transfers

+ − In-kind taxes, co-payments, user fees and

participation costs

Final Income = yf

Definition: Redistributive Spending

• Redistributive spending: all monetary transfers, direct and indirect subsidies, and in-kind transfers PLUS consumer subsidies, some producer subsidies and “social” tax expenditures MINUS non-subsidized portion of social security pensions

• In countries where spending at the provincial or state level is important, the total will include redistributive spending by governments at the subnational level

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Figure 5 - Redistributive Spending versus Social Spending

Note: Social Security under social spending includes the contributory part only.

SOCIAL SPENDING

REDISTRIBUTIVE SPENDING

--Health --Education--Social Assistance

--Public Goods (couldbe included in Redist)--Social Security

--"Social" Producer Subsidies--Consumption Subsidies--Subsidized Portion of Social Security Pensions--"Social" Tax Expenditures

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Progressive & Regressive Taxes & Transfers Taxes Transfers Relative Absolute Relative Absolute Progressive Poorer people pay

lower taxes in relation to their income. Post-fiscal income is more equal than market income.

Poorer people get larger transfers in relation to their income. Post-fiscal income is more equal than market income but less equal than when transfers are also progressive in absolute terms.

Poorer people get larger transfers in per capita terms. Post-fiscal income is more equal than market income and than when transfers are progressive in relative terms. . If transfers are progressive in absolute terms, by definition they are progressive in relative terms. The converse is not true.

Neutral Everyone pays the same proportion of taxes in relation to their income. Market income and post-fiscal income distributions are the same.

Everyone receives the same proportion of transfers in relation to their income. Market and post-fiscal income distributions are the same.

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Progressive & Regressive Taxes & Transfers

Regressive

Poorer people pay more taxes in relation to their income. Post-fiscal income is more unequal than market income but less unequal than when taxes are regressive in absolute terms.

Poorer people pay more taxes in per capita terms. Post-fiscal income is more unequal than market income and more unequal than when taxes are regressive in only relative terms. If taxes are regressive in absolute terms, by definition they are regressive in relative terms. The converse is not true.

Poorer people get smaller transfers in relation to their income. Post-fiscal income is more unequal than market income.

Taxes Transfers Relative Absolute Relative Absolute

Definition of Government Revenue

• Includes the total budgetary income of the federal government: – tax and non-tax revenue – plus income generated by direct

budgetary controlled entities or public enterprises

• In countries where revenue collected at the provincial or state level is “important,” the total will include the revenues obtained by governments at the subnational level 35

36

CEQ: Argentina (Pessino, 2010)

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Decline in Non-labor Income Inequality: Cash Transfers

since 2002• Emergency Employment Program (Jefes y

jefas de hogar)– 2002

• Pension Moratorium (Moratoria previsional)– 2007

• Universal “Subsidy” per Child (Asignacion universal por hijo) – 2009

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Pessino (2010)

2003 2004 2005 2006 2007 2008 2009

Number of pensioners

Argentina (millions)

39

Pessino (2010)

Percentage of People 65+ receiving Pensions

73.2

85.0

68.6

91.0

70.5

88.5

30

40

50

60

70

80

90

100

2001 2009

Males

Females

All

40

Pessino (2010)

41

Cash Transfer Programs: Total Beneficiaries(Gasparini y Cruces, 2010)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

AUHJefes

Familias

42

Monthly Benefits per Household (with 3 children) – In 2010 pesos

(Gasparini y Cruces, 2010)

0

100

200

300

400

500

600

2002 2003 2004 2005 2006 2007 2008 2009 2010

AUH

FamiliasJefes

Summary of resources Needed for Policy Objective 1

Millions of $ % of Total Expenditure % of Total Taxes Millions of $ % of Total Expenditure % of Total Taxes1.1 Cover Poverty Gap 7955 1.73 2.21 19170 4.17 5.331.2. Cover Idiosincratic and Systemic Shocks 1413 0.31 0.39 3575 0.78 0.991.3. Provide smoothing mechanisms old age (1933) (0.42) (0.54) (5828) (1.27) (1.62)1.4Ê Build the human capital 22943 4.99 6.38 39168 8.52 10.89TOTAL RESOURCES REQUIRED 32311 7.02 8.98 61913 13.46 17.21

US$ 2.5 a day PL US$ 4 a day PLUsing Primary Income without (before) Minimum Pensions

TABLE 4: COVERAGE, TARGETING AND LEAKAGES OF MONETARY TRANSFERS (POPULATION in %)(This table summarizes the results corresponding to PO1, Equity, Question 1.2)

POPULATIONSHARE OF SHARE OF

SHARE OF BENEF NONPOOR BENEFICCOVERAGE OVER TOTAL BENEF IN T20%EXT POV MOD POV EXT POV MOD POV

ARGENTINA (2009)Actual Monetary Transfers 45.5 37.4 30.6 50.3 49.7 2.2 Plus non contributory Pensions 75.5 65.7 34.4 46.7 53.3 7.1 Plus simulated AUH and food 86.3 79.9 31.9 46.2 53.8 6.4

Actual Monetary Transfers, include Programa Familias (that is not mentioned explicitly in the EPH but is the “residual” program) JJH, scholarships, and unemployment insurance).

TABLE 5: COVERAGE, TARGETING AND LEAKAGES OF MONETARY TRANSFERS (RESOURCES in %)(This table summarizes the results corresponding to PO1, Equity, Question 1.2)

RESOURCESSHARE OF TOTAL SHARE OF SHARE OFBENEFITS WHO GO BENEF TO BENEF TOTO THOSE BELOW NONPOOR TOP 20%EXT POV MOD POV

ARGENTINA (2009)Actual Monetary Transfers 32.0% 51.1% 48.9% 4.1% Plus non contributory Pensions 38.3% 49.1% 50.9% 7.7% Plus simulated AUH and food 38.4% 51.1% 48.9% 6.6%

Effect of principal targeted monetary transfers on poverty and inequality*Argentina-1st Semester 2009

2.5 US$FGT0 14.7 10.2 8.9 5.4FGT1 8.5 4.8 3.8 1.8FGT2 6.6 3.3 2.3 1.0Absolute Change in FGT0 -4.5 -5.8 -9.3Relative Change in FGT0 -30.6% -39.5% -63.3%Relative Change in FGT1 -43.5% -55.3% -78.8%Relative Change in FGT2 -50.0% -65.2% -84.8%4 US$FGT0 24.9 20.0 18.9 15.7FGT1 12.8 8.7 7.6 5FGT2 9.2 5.5 4.4 2.4Absolute Change in FGT0 -4.9 -6.0 -9.2Relative Change in FGT0 -19.7% -24.1% -36.9%Relative Change in FGT1 -32.0% -40.6% -60.9%Relative Change in FGT2 -40.2% -52.2% -73.9%GINI coefficient 0.499 0.468 0.461 0.444RS= Absolute Change in Gini -0.031 -0.038 -0.055Percentage Change in Gini -6.2% -7.6% -11.0%

Pre_moratorium Pensions**

After Moratorium

With Monetary Transfers

With Monetary transfers and

Child Subs.***

Notes: * Transfers and household income as reported in EPH survey (not adjusted to National Accounts). **Market income net of payroll taxes (income taxes and social security contributions retained by employer) and gross of taxes for the self-employed.Moratorium pensions are estimated as those less than 800$ *** Child Subsidy (Asignacion Universal por Hijo) is simulated

48

Value USD PPP 2.50 dollars a day 194.3 USD PPP 4.00 dollars a day 311.0Extreme Poverty Line Using FIEL CPI 236.2Moderate Poverty using FIEL CPI 494.3Extreme Poverty Line Using Official CPI 143.9Moderate Poverty using Official CPI 324.3Source: Own estimation based on INDEC, WDI, FIEL and Buenos Aires City (for private estimates of inflation rate)

Table 4. Selected Poverty Lines First Semester 2009, Argentina

Pessino (2010)

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The “excluded”

hombregbaneanoa

patapampa

migra_recextedad2540edad4164edadm65

pricseciseccsupisupc

casadosoltero

nro_hijosinacm

asainforcuentapatr

unempprecaria

-2 -1.5 -1 -0.5 0 0.5 1 1.5

Post-transfer Cond Poor Pre-Transfer Poor

The “excluded” (probits)

•Before transfers poverty is associated with being a woman, living in shantytowns, migrant from neighbouring countries, older than 65, less educated, from the north and unemployed

•After transfers poverty is associated with being male, not living in shantytowns, not being a recent migrant, younger than 41, and more educated

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ARGENTINA: REQUIRED RESOURCES TO CLOSE MONETARY POVERTY GAP (2009)( WITH AND WITHOUT MINIMUM PENSIONS)

(2009 billion pesos otherwise specified)

BEFORE TRANSFERS BUT AFTER PENSIONS

BEFORE ALL TRANSFERS

BEFORE TRANSFERS BUT AFTER PENSIONS

BEFORE ALL TRANSFERS

US$2.50 POVERTY LINE US$4 POVERTY LINETOTAL REQUIRED RESOURCES 4.5 8 13 19.2AS A % OF GOV EXP 0.98 1.74 2.83 4.17AS A % OF TAXES 1.25 2.22 3.61 5.33AS A % OF GDP 0.39 0.70 1.14 1.68AS A % OF REDIST SPENDING 1.82 3.24 5.27 7.78MEMO:GDP 1144.3 1144.3 1144.3 1144.3Consolidated Gov Exp 460 460 460 460as a % of GDP 40.2 40.2 40.2 40.2Taxes 360 360 360 360as a % of GDP 31.5 31.5 31.5 31.5Redistributive Spending 246.7 246.7 246.7 246.7as a % of GDP 21.6 21.6 21.6 21.6Source: Pessino (2010); Lustig and Pessino (2010)Note: Pensions refer to non-contributory and moratorium pensions (defined as any pension below 800 pesos per month; upper bound estimate)Redistributive Spending is equal to social spending plus economic subsidies minus contributory portions of health and pensions in social security system

52

Redistribution and Fiscal Sustainability

• Closing the extreme (pov line US$2.50) and total poverty (pov line US$4) gaps--with perfect targeting--would cost:

– 0.7 and 1.7 percent of GDP, respectively – 2.2 and 5.3 percent of tax revenues,

respectively– 3.2 and 7.8 percent of redistributive spending,

respectively• Seems compatible with fiscal

sustainability

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ARGENTINA: CONSOLIDATED REDISTRIBUTIVE EXPENDITURE(2009 billions of pesos)

Billion of PesosComposition % % of GDPTOTAL 246.7 100 21.6Education 58.8 23.8 5.1Health 35.8 14.5 3.1Social Protection 56.6 22.9 4.9 Social Insurance 27 10.9 2.4 Social Assistance 29.6 12.0 2.6Economic Subsidies 60.7 24.6 5.3 Energy 19.8 8.0 1.7 Transport 27.6 11.2 2.4 Rest 13.3 5.4 1.2Other 34.8 14.1 3.0Source: Pessino (2010); Lustig and Pessino (2010)

CEQ Mexico (Scott, 2010)

Total resources available and needs (gaps)

  

 Line 

 

Resources (million pesos)

 

Needs (gaps)

Poverty & HK Gap Poverty Gap

HK GapPension

GapPG Shock2008-2009Total Education

GapHealth

Gap

Gap after transfers <2.5        

<4        

Gap before transfers <2.5   231,888 42,138 159,413 105,132 54,280 15,133 15,204

<4   532,896 134,824 309,430 197,341 112,089 39,998 48,645 Resources/Gaps

Total Revenue  <2.5 2,824,741 12.18 67.03 17.72 26.87 52.04 186.66 185.79

<4 5.30 20.95 9.13 14.31 25.20 70.62 58.07

Redistributive Spending <2.5 1,699,091 7.33 40.32 10.66 16.16 31.30 112.27 111.76

<4 3.19 12.60 5.49 8.61 15.16 42.48 34.93

Social Spending <2.5 1,326,540 5.72 31.48 8.32 12.62 24.44 87.66 87.25

<4 2.49 9.84 4.29 6.72 11.83 33.17 27.27

Targeted (anti-poverty, net of admin 10%)

<2.5 183,009 0.79 4.34 1.15 1.74 3.37 12.09 12.04

<4 0.34 1.36 0.59 0.93 1.63 4.58 3.76

Education <2.5 432,446       4.11      

<4       2.19      

Health <2.5 324,201        5.97    

<4         2.89    

Social Security: Old Age

<2.5 338,483          22.37  

<4           8.46  

Resources reaching the poor and needs (gaps)

  Line 

 

Resources reachingthe poor

Needs (gaps)

Poverty & HK Gap

Poverty Gap

HK GapPension

GapPG Shock2008-2009Share of

total spent (%)

Million pesos Total Education

GapHealth

Gap

Gap after transfers

<2.5       52,235 34,388 13,660 4,187  

<4       99,678 62,607 29,267 7,804  

Gap before transfers <2.5   231,888 42,138 159,413 105,132 54,280 15,133 15,204

<4   532,896 134,824 309,430 197,341 112,089 39,998 48,645 Resources/Gaps

Redistributive Spending

<2.5 10.5% 177,610 0.77 4.21 1.11 1.69 3.27 11.74 11.68 <4 21.1% 358,442 0.67 2.66 1.16 1.82 3.20 8.96 7.37

Social Spending <2.5 12.5% 165,508 0.71 3.93 1.04 1.57 3.05 10.94 10.89 <4 24.6% 326,229 0.61 2.42 1.05 1.65 2.91 8.16 6.71

Targeted (anti-poverty, net of admin 10%)

<2.5 37.2% 68,014 0.29 1.61 0.43 0.65 1.25 4.49 4.47 <4 59.4% 108,713 0.20 0.81 0.35 0.55 0.97 2.72 2.23

Education <2.5 16.4% 70,744      0.67      <4 31.2% 134,734      0.68      

Health <2.5 12.5% 40,620        0.75    <4 25.5% 82,822        0.74    

Social Security: Old Age

<2.5 3.2% 10,946          0.72  <4 9.5% 32,193          0.80  

Concentration indeces (vertical) and budgetary effort (size of bubbles) in principal redistributive programs (color)

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

Opciones Productivas

Vivienda (Tu Casa)

Adultos mayores DF

Becas públicas (excl. Oport.)

Adultos mayores Fed

Salud PEMEX, FA

PROCAMPO

Pensiones PEMEX, FA

Salud ISSSTE

Subsidio empleo

Seguro Popular

EduPreescolar

Subs. Agric.

Pensiones ISSSTE

Pensiones IMSS

Electrico Residencial

Edu Media Superior

Salud SSA

Edu Secundaria

Salud IMSS

Subsidio Gasolinas (IEPS)

Edu Primaria

Gasto Fiscal IVA

Reg

resiv

e (r

e-la

tive)

Prog

resi

vo (a

bsol

ute)

Prog

resi

ve (r

e-gr

essi

ve)

Prog

ress

ive

Concentration Coefficients

Oportunidades Piso Firme

PET IMSS-Oportunidades (ENN)

Health insurance SP Total targeted

Despensa DIF Rural Old Age Pension Health Uninsured (SSA)

Primary edu Preschool edu

Lower Sec edu Desayunos escolares DIF

Housing (Tu Casa) Credito a la Palabra

Liconsa Habitat

Upper Sec edu Opciones Productivas Total

Total untargeted Electricity (RES)

Total (cuasi) monetary LP gas subsidy Health IMSS

SS/pensions IMSS Tertiary edu

IVA Exemptions Credit Programs SS/pensions ISSSTE

Gasoline subsidy Health ISSSTE

SS/pensions Other Procampo (land)

Scholarships (excl. Oport) Total APE (land)

Pre-transfer GINI

-0.85 -0.75 -0.65 -0.55 -0.45 -0.35 -0.25 -0.15 -0.05 0.05 0.15 0.25 0.35 0.45 0.55 0.65 0.75 0.85

Ingreso Objetivo (land)

Dark gray: targeted Light gray: untargeted

Effect of all (imputable) transfers on the distribution of income1

Indices Before Transfers2

After transfers

All Targeted transfers

Non-targeted

subsidies3

In Kind Transfers

Total Education Health

Decile shares 1 1.2% 2.3% 1.4% 1.2% 2.1% 1.9% 1.4% 2 2.4% 3.3% 2.5% 2.4% 3.2% 3.0% 2.6% 3 3.4% 4.2% 3.5% 3.5% 4.2% 4.0% 3.6% 4 4.4% 5.1% 4.4% 4.4% 5.0% 4.8% 4.6% 5 5.6% 6.1% 5.6% 5.6% 6.0% 5.9% 5.7% 6 6.9% 7.3% 6.9% 6.9% 7.2% 7.1% 7.0% 7 8.7% 8.9% 8.6% 8.7% 8.8% 8.7% 8.7% 8 11.2% 11.1% 11.1% 11.2% 11.1% 11.0% 11.2% 9 15.9% 15.2% 15.8% 15.9% 15.3% 15.4% 15.7%

10 40.5% 36.6% 40.2% 40.1% 37.0% 38.1% 39.3% Gini 0.501 0.439 0.494 0.497 0.446 0.461 0.484

Reduction Gini 12.4% 1.4% 1.0% 11.1% 8.1% 3.5% Transfer size (% GDP) 9.1% 0.5% 4.8% 7.2% 4.9% 2.7%

Reduction Gini/ % GDP 1.36 2.63 0.20 1.54 1.65 1.26

Transfer to poor/ Poverty Gap

2.5 line 263% 41% 28% 219% 162% 59% 4 line 164% 21% 22% 139% 101% 40%

1Distribution of household income and transfers as reported in the ENIGH survey. Household income adjusted to National Accounts. Value of public transfers as reported in public accounts. 2Market income net of payroll taxes (income taxes and social security contributions retained by employer). 3Non targeted subsidies to pensions and other non-health social security benefits, employment subsidy, non-Oportunidades scholarships, energy and agricultural subsidies.

Effect of principal targeted monetary transfers on poverty and inequality*

Indices Before transfers**

After transfers

Total Oportunidades Adultos Mayores Procampo

Becas (excl.

Oportunidades)

Other social

programs FGT < 2.5

p0 0.1350 0.1042 0.1186 0.1311 0.1323 0.1344 0.1273 p1 0.0539 0.0335 0.0399 0.0516 0.0519 0.0536 0.0502 p2 0.0305 0.0153 0.0194 0.0286 0.0289 0.0303 0.0280

Reduction p0 22.8% 12.1% 2.9% 2.0% 0.4% 5.7% p1 38.0% 26.0% 4.4% 3.8% 0.6% 7.0% p2 49.9% 36.6% 6.3% 5.3% 0.8% 8.4%

FGT < 4 p0 0.2639 0.2352 0.2498 0.2611 0.2624 0.2628 0.2549 p1 0.1078 0.0842 0.0933 0.1053 0.1058 0.1073 0.1028 p2 0.0620 0.0424 0.0489 0.0597 0.0601 0.0616 0.0584

Reduction p0 10.9% 5.3% 1.1% 0.6% 0.4% 3.4% p1 21.9% 13.5% 2.3% 1.9% 0.5% 4.6% p2 31.6% 21.2% 3.6% 3.1% 0.6% 5.9%

Gini 0.5235 0.5118 0.5150 0.5219 0.5224 0.5231 0.5231 Reduction

2.23% 1.61% 0.30% 0.20% 0.08% 0.07%

* Transfers and household income as reported in ENIGH survey (not adjusted to National Accounts). **Market income net of payroll taxes (income taxes and social security contributions retained by employer).

Leakage(% resourses to poor and non-poor)

Coverage(beneficiaries/poor)

Extreme poor

2.5Moderate poor 4.0 Non-poor

Extreme poor 2.5

Moderate poor 4.0

Oportunidades 41.9% 23.1% 35.0% 58.1% 35.9%Adultos Mayores 29.2% 12.5% 58.4% 9.9% 4.8%Procampo 32.3% 11.6% 56.2% 12.0% 3.9%Becas (excl. Oportunidades) 9.5% 6.9% 83.6% 4.4% 4.3%Other social programs 22.8% 13.9% 63.3% 3.7% 2.3%Seguro Popular (Non–contributive health)

41.5% 33.7%

Contributive Health Insurance 4.8% 15.8%

Contributive Pensions 10.6% 9.1%

Proportion of poor households not covered by transfers (in %)

Living below US$2.5/day …………..   37.2   

Living below US$4/day   …………..  49.3

Memo: Percentage of poor households not covered by Oportunidades, Procampo and Minimum Pension (non-contributory)   

Poverty is associated with southern, rural and indegenous HHs…Transfers exclude (are insufficient) the poor among urban, young, indegenous and more educated HHs.. (probits)

jefe_h~e*noroeste*noreste*

occide~e*centro~e*

oriente*suroeste*sureste*

eda~2540*eda~4164*edadj65m*

pric*seci*secc*

bachi*bachc*

supi*supcop*jcasado*

hijos_jjsaraf~e*jlengind*

loc~100m*loc2~15m*

loclt2q*

-2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00 1.50

Post-transfer, cond poorPre-transfer

64

The “excluded” (probit)

• Before transfers poverty is associated with living in the south, rural and indigenous

• After transfers poverty is associated with living in urban areas, young, indigenous and more educated households

65

Thank you