A poverty-focused evaluation of commodity tax options

The difficulties faced by many developing countries in raising revenue from direct taxes have forced them to rely heavily on indirect taxes to finance development interventions. The purpose of this paper is to show how to identify socially desirable options for commodity taxation in the context of a poverty reduction strategy. Within the logic of social evaluation the author assesses tax options on the basis of value judgments underlying members of the additively separable class of poverty measures. The criterion hinges on both the pattern of consumption of each commodity and the price elasticity of the poverty measure used. An application of this methodology to data for Guinea shows that many components of food expenditure (particularly cereals, grains, and roots) would be good candidates for exemption from value-added tax. Even though expenditure on health and education is distributed in favor of the non-poor, their importance for human capital development argues for a program of targeted subsidies in a broader context of cost recovery.Rural Poverty Reduction,Population Policies,Economic Theory&Research,Achieving Shared Growth

A counterfactual analysis of the poverty impact of economic growth in Cameroon

The Government of Cameroon has declared poverty reduction through strong and sustainable economic growth the central objective of its socioeconomic policy. This paper uses available household survey data to assess the performance of the economy with respect to this objective over the period 1996-2007. The authors use counterfactual decompositions based on both the Shapley method and the generalized Oaxaca-Blinder framework to identify proximate factors that might explain differences in observed outcomes over time, across regions and households. The concept of pro-poorness provides a basis for a normative evaluation of these outcomes. The analysis of changes in the size distribution of economic welfare reveals that formal sector employment, access to credit, education, and urban residence are characteristics that bring significantly high returns to households. Employment in smallholder agriculture has a negative impact on welfare across quantiles. Economic growth was accompanied by significant poverty reduction between 1996 and 2001. But poverty barely decreased between 2001 and 2007 due to very weak growth. Over the same period, household investment in human capital took a serious hit. Given the additional finding that the pattern of growth is characterized by urban bias and regional disparity, the overall assessment is that economic growth has been weakly pro-poor in Cameroon. There is therefore a need to re-examine and possibly reform the mechanisms governing the allocation of public resources designed to support individuals'efforts to improve their standard of living.Rural Poverty Reduction,Achieving Shared Growth,Regional Economic Development,Inequality

Measuring the pro-poorness of income growth within an elasticity framework

Poverty reduction has become a fundamental objective of development, and therefore a metric for assessing the effectiveness of various interventions. Economic growth can be a powerful instrument of income poverty reduction. This creates a need for meaningful ways of assessing the poverty impact of growth. This paper follows the elasticity approach to propose a measure of pro-poorness defined as a weighted average of the deviation of a growth pattern from the benchmark case. The measure can help assess pro-poorness both in terms of aggregate poverty measures, which are members of the additively separable class, and at percentiles. It also lends itself to a decomposition procedure, whereby the overall pattern of income growth can be unbundled, and the contributions of income components to overall pro-poorness identified. An application to data for Indonesia in the 1990s reveals that the amount of poverty reduction achieved over that period remains far below what would have been achieved under distributional neutrality. This conclusion is robust to the choice of a poverty measure among members of the additively separable class, and can be tracked back to changes in expenditure components.Achieving Shared Growth,Population Policies,Services&Transfers to Poor,Inequality,Rural Poverty Reduction

Reading tealeaves on the potential impact of the privatization of tea estates in Rwanda

The Poverty Reduction Strategy of the Government of Rwanda seeks to unlock the growth and poverty reduction potential of the tea sector through the privatization of tea estates. This paper uses the logic of causal inference and data from the 2004 Quantitative Baseline Survey of the tea sector to assess the potential impact of the privatization program. This entails anormalized comparison of productivity outcomes to account for household heterogeneity in terms of observable and non-observable determinants of these outcomes. The paper also compares living standards between tea and non-tea households. Three main findings emerge from the analysis. Productivity outcomes are generally better in the private sector than in the public sector. Male-headed households outperform female-headed households along all dimensions considered here. And tea households tend to be better off than non-tea households.Crops&Crop Management Systems,Access to Finance,Poverty Monitoring&Analysis,Small Area Estimation Poverty Mapping,Housing&Human Habitats

Accounting for heterogeneity in growth incidence in Cameroon

This paper presents counterfactual decompositions based on both the Shapley method and a generalization of the Oaxaca-Blinder approach to identify proximate factors that might explain differences in the distribution of economic welfare in Cameroon in 1996-2007. In particular, the analysis uses re-centered influence function regressions to link the growth incidence curve for 2001-2007 to household characteristics and account for heterogeneity of impact across quantiles in terms of the composition (or endowment) effect and structural (or price) effect. The analysis finds that the level of the growth incidence curve is explained by the endowment effect while its shape is driven by the price effect. Observed gains at the bottom of the distribution are due to returns to endowments. The rest of the gains are accounted for by the composition effect. Further decomposition of these effects shows that the composition effect is determined mainly by household demographics while the structural effect is shaped by the sector of employment and geography. Finally, analysis of the rural-urban gap in living standards shows that, for the poorest households in both sectors, differences in household characteristics matter more than the returns to those characteristics. The opposite is true for better-off households.Rural Poverty Reduction,Achieving Shared Growth,Regional Economic Development,Economic Theory&Research

Too little too late : welfare impacts of rainfall shocks in rural Indonesia

The authors use regression analysis to assess the potential welfare impact of rainfall shocks in rural Indonesia. In particular, they consider two shocks: (i) a delay in the onset of monsoon and (ii) a significant shortfall in the amount of rain in the 90 day post-onset period. Focusing on households with family farm businesses, the analysis finds that a delay in the monsoon onset does not have a significant impact on the welfare of rice farmers. However, rice farm households located in areas exposed to low rainfall following the monsoon are negatively affected. Rice farm households appear to be able to protect their food expenditure in the face of weather shocks at the expense of lower nonfood expenditures per capita. The authors use propensity score matching to identify community programs that might moderate the welfare impact of this type of shock. Access to credit and public works projects in communities were among the programs with the strongest moderating effects. This is an important consideration for the design and implementation of adaptation strategies.Science of Climate Change,Climate Change Mitigation and Green House Gases,Housing&Human Habitats,Rural Poverty Reduction,Regional Economic Development

A poverty analysis macroeconomic simulator (PAMS) linking household surveys with macro-models

The Poverty Analysis Macroeconomic Simulator (PAMS) is a model that links standard household surveys with macro frameworks. It allows users to assess the effect of macroeconomic policies-in particular, those associated with Poverty Reduction Strategies papers-on sectoral employment and income, the incidence of poverty, and income distribution. PAMS (in Excel) has three interconnected components: o A standard aggregate macro-framework that can be taken from any macro-consistency model (for example, RMSM-X, 123) to project GDP, national accounts, the national budget, the BoP, price levels, and so on, in aggregate consistent accounts. o A labor market model breaking down labor categories by skill level and economic sectors whose production total is consistent with that of the macro framework. Individuals from the household surveys are grouped in representative groups of households defined by the labor category of the head of the household. For each labor category, labor demand depends on sectoral output and real wages. Wage income levels by economic sector and labor category can thus be determined. In addition, different income tax rates and different levels of budgetary transfers across labor categories can be added to wage income. o A model that uses the labor model results for each labor category to simulate the income growth for each individual inside its own group, assumed to be the average of its group. a abstr After projecting individual incomes, PAMS calculates the incidence of poverty and the inter-group inequality. PAMS can produce historical or counterfactual simulations of: o Alternative growth scenarios with different assumptions for inflation, fiscal, and current account balances. These simulations allow test tradeoffs within a macro stabilization program. o Different combinations of sectoral growth (agricultural or industrial, tradable or non-tradable goods sectors), within a given aggregate GDP growth rate. o Tax and budgetary transfer policies. For example, PAMS will simulate a baseline macro-scenario for Burkina Faso corresponding to an existing IMF/World Bank-supported program and introduce changes in tax, fiscal, and sectoral growth policies to reduce poverty and inequality more effectively than the base scenario. So, the authors argue that there are several possible"equilibria"in terms of poverty and inequality within the same macro framework.Banks&Banking Reform,Environmental Economics&Policies,Health Economics&Finance,Labor Policies,Economic Theory&Research,Environmental Economics&Policies,Poverty Assessment,Health Economics&Finance,Economic Theory&Research,Achieving Shared Growth

Propensity score matching and policy impact analysis - a demonstration in EViews

Effective development policymaking creates a need for reliable methods of assessing effectiveness. There should be, therefore, an intimate relationship between effective policymaking and impact analysis. The goal of a development intervention defines the metric by which to assess its impact, while impact evaluation can produce reliable information on which policymakers may base decisions to modify or cancel ineffective programs and thus make the most of limited resources. This paper reviews the logic of propensity score matching (PSM) and, using data on the National Support Work Demonstration, compares that approach with other evaluation methods such as double difference, instrumental variable, and Heckman's method of selection bias correction. In addition, it demonstrates how to implement nearest-neighbor and kernel-based methods, and plot program incidence curves in E-Views. In the end, the plausibility of an evaluation method hinges critically on the correctness of the socioeconomic model underlying program design and implementation, and on the quality and quantity of available data. In any case, PSM can act as an effective adjuvant to other methods.Poverty Monitoring&Analysis,Poverty Impact Evaluation,Statistical&Mathematical Sciences,Scientific Research&Science Parks,Science Education

Identification of sources of variation in poverty outcomes

The international community has declared poverty reduction one of the fundamental objectives of development, and therefore a metric for assessing the effectiveness of development interventions. This creates the need for a sound understanding of the fundamental factors that account for observed variations in poverty outcomes either over time or across space. Consistent with the view that such an understanding entails deeper micro empirical work on growth and distributional change, this paper reviews existing decomposition methods that can be used to identify sources of variation in poverty. The maintained hypothesis is that the living standard of an individual is a pay-off from her participation in the life of society. In that sense, individual outcomes depend on endowments, behavior and the circumstances that determine the returns to those endowments in any social transaction. To identify the contribution of each of these factors to changes in poverty, the statistical and structural methods reviewed in this paper all rely on the notion of ceteris paribus variation. This entails the comparison of an observed outcome distribution to a counterfactual obtained by changing one factor at a time while holding all the other factors constant.Economic Theory&Research,Labor Policies,Markets and Market Access,Environmental Economics&Policies,Poverty Monitoring&Analysis

The poverty and distributional impact of macroeconomic shocks and policies : a review of modeling approaches

The importance of distributional issues in policymaking creates a need for empirical tools to assess the social impact of economic shocks and policies. This paper reviews some of the modeling approaches that are currently in use at the World Bank and other international financial institutions. The specification of these models is dictated by the issues at stake, the knowledge about the nature of the process involved, and the availability and reliability of relevant data. Furthermore, shocks and policies have macroeconomic, structural, and distributional implications. This creates interdependence between such policy issues. Finally, the distributional impact of shocks and policies hinges on the heterogeneity of socioeconomic agents with respect to endowments and behavior. In the end, each modeling approach should be judged on how well it handles the interdependence between policy issues and the heterogeneity of the stakeholders, given other constraints.Environmental Economics&Policies,Poverty Assessment,Economic Theory&Research,Achieving Shared Growth,Inequality