1963-2013 - 50 years of Research for Social Change

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Combating Poverty and Inequality: Structural Change, Social Policy and Politics


From Chapter 8 – Financing Social Policy

This chapter analyses the contrasting effects of different financing sources and instruments on social development, equality and poverty outcomes. A clear case can be made for increasing investments in social protection and social services in order to make meaningful dents in the multiple manifestations of poverty. The United Nations Millennium Project recognized this in calling on most developing countries to mobilize up to an additional 4 per cent of their gross domestic product (GDP) to promote poverty reduction.

Such funds can be raised from a variety of sources: internally via taxation and social insurance schemes, externally in the form of aid or, in the case of mineral-rich countries, by taking advantage of favourable commodity prices and channelling rents into social programmes. Social protection and social services can also be financed privately through household income, including transfers from migrant workers, and unpaid work. Obviously such public and private sources lead to significant differences in terms of outcomes.

The chapter is organized as follows
  • Section 1 of the chapter describes how social expenditures and public finances vary according to income level and policy regime, how they have been affected by globalization and why social policies are affordable even for low-income countries.
  • Section 2 focuses on the links between different revenue sources and financing instruments and the various dimensions of social policy – redistribution, reproduction, production and protection.
  • Section 3 analyses the impact of selected revenue sources on development outcomes and equality across various social policy regimes and development contexts. It compares domestic resources such as taxation, social insurance contributions and pension funds with sources such as mineral rents, aid and remittances.
  • Section 4 highlights policy lessons and remaining challenges, particularly with regard to the political economy of financing social policy.

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