This project explored mechanisms for financing social policies while balancing the principles of efficiency and equity. As one of the most important interfaces between social and economic policy, institutions for financing social policy must not only generate sufficient revenues, they must also ensure stable and sustainable resource flows. Furthermore, they should be arranged in a way that is conducive to achieving goals of democracy and economic development.
However, meeting these goals in the context of increasingly globalized economies poses especially difficult challenges for developing countries. The capacity of states to implement social policies has been greatly affected by the changes in fiscal policy, labour markets and productive structures that accompanied structural adjustment processes. With increased liberalization of trade and capital flows, pressures to be competitive and allocate resources efficiently have limited options for national economic policy making, exacerbating debt and unemployment and rendering economic crises ever more frequent. Most recently, the financial crisis that struck global markets in 2008 has made it even more challenging for policy makers and public institutions to mobilize resources for social policy at the same time as the demand for social policies to help mitigate the negative consequences of the economic downturn is escalating.
In order to avoid a one-size-fits-all approach and move towards an integrated model of economic and social policy, it is crucial to recognize the complex functions of social policy in a development context – including production, reproduction, protection, redistribution, as well as equity, inclusion, cohesion and rights (see Mkandawire 2001). Research on financing social policy seeks to learn from past experiences and to understand the challenges that confront the achievement of such objectives.
To this end, this project addressed the urgent need for greater policy coherence between the economic and social spheres while accounting for trade-offs and constraints that are inherent to these processes. The following questions outline the key themes that guided research in this area:
- What are the financial options for developing countries that aim to implement social policies in order to move towards societies that are economically productive, democratically anchored and socially inclusive?
- How are financing mechanisms to enable transformative social policies shaped by market constellations, legacies of the past, as well as political and institutional capacities of the present?
- What is the role of external actors and advisors, policy models and ideologies in determining the availability of resources and design of funding structures?
- What is the impact of globalization and related governance structures on social policy finance regimes for those countries at the periphery of the world market?
- How are issues of vertical and horizontal inequalities addressed through revenue and expenditure structures? How can financing policies and tools be designed in an equitable and progressive way?
- What are specific challenges to financing social policies that arise in times of crisis and for (post-) conflict societies?
No simple answers emerged from the research on financing social policies in developing countries. UNRISD approached the subject with conceptual and theoretical analyses complemented by comparative and in-depth country case studies. Within this framework, sub-projects were conducted on taxation, social insurance and pension funds, as well as the specific possibilities and challenges associated with foreign-exchange resources like mineral rents, remittances and aid. Thematic papers outlined the potential and trade-offs associated with these given sources of finance, while the case studies evaluated the experiences of specific countries, keeping in mind several broad comparative dimensions (e.g., regime type, economic and social characteristics, institutional structure of the social policy regime, conception of social policy in terms of conditionality or as rights-based, and of course, the financial resources and budget processes).
Work on this project was organized in two phases. In the first phase, UNRISD commissioned 13 conceptual and empirical studies to broadly assess the potential for various revenue sources to be channeled through social policies and contribute to social development goals. This phase culminated in a workshop held on 1-2 March 2007 in Geneva. To access the issue of UNRISD Conference News (available in English, French and Spanish) from this event, click on the Publications tag above.
A volume on Financing Social Policy: Mobilizing Resources for Social Development
, based on the results of the first phase of the project and edited by Katja Hujo and Shea McClanahan, was published by Palgrave Macmillan / UNRISD in 2009.
A further outcome of this UNRISD research project was a chapter on Financing social and labour market policies in times of crisis and beyond
which Katja Hujo contributed to the 2013 UNDESA publication on the Twin Challenges of Reducing Poverty and Creating Employment.
Drawing on the results from the first workshop, research during the project’s second phase consisted of in-depth case studies and comparative analysis of country experiences with financing social policy through selected revenue sources.
1. Taxation Reform.
Research on taxation reform
assessed the sufficiency and sustainability of tax revenues in specific countries, the economic and social effects of tax policy, the relationship between tax policy and social policy, tax reform and decentralization, and the contribution of tax policy to economic and social goals of growth, stability, equity, cohesion and democracy.
Delamonica, Enrique and Santosh Mehrotra. 2008. How Can Financing of Social Services Be Pro-Poor? (Draft)
Di John, Jonathan. 2008. Fiscal Reforms, Developmental State Capacity and Poverty Reduction (Draft).
Paper commissioned for UNRISD Flagship Report on Poverty.
2. Social Insurance.
The social insurance
sub-project evaluated the potential for extending coverage and improving fragmented and often regressive social insurance schemes while safeguarding fiscal sustainability to pave the way for a universal system in the long run. In addition, it assessed issues like equity, access, fiscal transparency and democratic accountability in social insurance systems and analyse recent trends such as pro-poor social assistance schemes.
Mesa-Lago, Carmelo. 2008. Social Insurance (Pension and Health), Labour Markets and Coverage in Latin America
. Programme on Social Policy and Development, Paper No. 36. UNRISD, Geneva.
Slater, Rachel. 2008. Cash Transfers, Social Protection and Poverty Reduction (Draft).
Paper commissioned for UNRISD Flagship Report on Poverty.
3. Pension Funds and Economic Development.
Research on pension funds
addressed challenges to managing pension funds in development contexts, their contribution to social and economic development (in particular in terms of financing) and the relative benefits of various models for pension systems (e.g., pay-as-you-go versus funded systems; decentralized models versus National Provident Funds). Other themes included the relationship between the pension system and the broader social policy and labour market regime, the allocation of pension funds in the national and international economies, the role of donors and external models with respect to pension reform, and the impact of pension systems on social cohesion, equity and redistribution. Six papers on pension reform in South Africa, Central and Eastern Europe, India, the Republic of Korea, Brazil and the Middle East were commissioned.
Hujo, Katja (ed.): Reforming Pensions in Developing and Transition Countries
. Basingstoke: UNRISD/Palgrave, 2014.
Hujo, Katja and Mariana Rulli: The Political Economy of Pension Re-Reform in Chile and Argentina: Toward More Inclusive Protection.
Research Paper 2014-1, Geneva: UNRISD, 2014.
Battle, Ken and Edward Tamagno. 2007. Public Pensions in a Development Context: The Case of Canada
. Programme on Social Policy and Development, Paper No. 31. UNRISD, Geneva.
Kangas, Olli E. 2006. Pensions and Pension Funds in the Making of a Nation-State and a National Economy: The Case of Finland
Programme on Social Policy and Development, Paper No. 25. UNRISD, Geneva.
4. Mineral Rents and Social Development.
The mineral rents
sub-project explored the extent to which resource-abundant countries are able to utilize their resources to induce a process of sustained economic growth that allows for overall improvements in the welfare of their citizens. It addressed the “resource curse” -- the allegedly negative link between resource abundance and development -- along with the political and social implications of mineral wealth (e.g., conflict, effects on social policy, human rights and democracy). Macroeconomic challenges associated with mineral rents, the contribution of the corporate sector to social protection, and the possibilities for the synergistic pursuit of economic and social goals in resource-rich countries were also considered.
Eight papers were commissioned for this sub-project. These were presented and discussed at a two-day workshop, held in Geneva on 24-25 April 2008. Four research papers dealt with thematic issues like economic policy, growth patterns, social policy and state revenues, and institutional change and developmental state capacity in mineral-rich countries, and four papers were commissioned as overview case studies on Norway, Chile, Indonesia and Nigeria. To access the issue of UNRISD Conference News (available in English, French and Spanish) from this event, click on the Publications tag above.
The final volume from this research, Mineral Rents and the Financing of Social Policy: Opportunities and Challenges
(Katja Hujo, ed.), was published by Palgrave Macmillan / UNRISD in May 2012.
Hinojosa, Leonith, Anthony Bebbington, Armando Barrientos and Tony Addison. 2010. Social Policy and State Revenues in Mineral-Rich Contexts
. Programme on Social Policy and Development, Paper No. 44. UNRISD, Geneva.
5. Remittances and Social Policy.
In light of the growing importance of global remittance flows, research on remittances
explores existing and potential links between these private international transfers and social policy. This sub-project examines the influence of remittances on the productive potential of receiving households, individuals and the macroeconomy, the use of remittances as a form of social protection (during economic downturns or lifecycle risks and unemployment), the impact remittances may have on gender equality and the care regime, as well as on intra-household, intra-community and intra–regional equity and equality, and the effects of remittances on social inclusion, rights, and political participation.
Additional information on remittances and other issues relating to migration in developing countries can be found in the section of the website dedicated to the project Social Policy and Migration in Developing Countries
De Haas, Hein. 2007. Remittances, Migration and Social Development: A Conceptual Review of the Literature
. Programme on Social Policy and Development. Paper No. 34, UNRISD, Geneva. 2007. To access this paper, click on the Publications tag on the upper right side of this page.
6. Financing Social Policy and Aid.
The research sub-project on financing social policy and aid
aims to understand how foreign development assistance influences social development and social provisioning in recipient countries. It pays particular attention to the relationship between aid, economic development and human well-being, taking into account the multiple roles social policy has to fulfil. Research assesses the consequences of aid for macroeconomic and fiscal policy, and for internal revenue generation. It also explores the effects of aid on redistribution, social policy regimes, gender relations and democratic processes.
“Financing Social Policy” was funded by the Ford Foundation and UNRISD core funds.