Policy challenges and the management of difficult trade-offs

Comprehensive anti-poverty initiatives have been instrumental in supporting the decline of poverty rates and income inequality. Yet, as illustrated above, with the widening of inequality and the rise in poverty since the crisis, there is no room for complacency. For poverty to be reduced significantly, social transfers to the poorest must increase. Although in recent years there has been a reallocation of expenditure in favour of the most progressive policies, and a reduction in expenditure to the most regressive instruments (for example, subsidies for gasoline and diesel, which mainly benefit middle- and high-income groups), many programmes are not targeted to the poor (coNEVAL, 2012). total social expenditure on cash transfers (pensions, health, family, active labour market programmes) benefits people at the higher end of the distribution, so that only about 10% of the total funds are received by the poorest 20% (OECD, 2011a). in particular, the social assistance system could be further enhanced in order to better protect Mexican households and the economy against shocks (see Chapter 3 on fiscal issues). inefficient subsidies for energy, agriculture and fisheries could be replaced by higher direct social spending with much greater benefits targeted for the poor (see Chapters 11 and 13 on green growth and Agricultural policy, respectively).

Policy options to increase the effectiveness of cash transfers

As Oportunidades expanded, more resources have been invested in means testing. in principle, means tests can be a useful tool insofar as it could lead to reinforcing the capacity of the administrators to assess the real welfare situation of households. in Mexico however, close targeting is also likely to entail several costs (OECD, 2010). First, there are the administrative constraints (both budgetary and in terms of capacity): gathering the information required for the means test is expensive. Second, accessing the programme is also costly for the applicants, in terms of time, information gathering, and commuting to reach the registration site. third, social costs may arise if programme participation carries some sort of stigma. these considerations suggest that in practice, effectively targeting CCT programmes can be both complex and expensive. the trade-offs between the effort to reinforce means testing and the related possible economic and social costs merit scrutiny. means testing involves a balancing act between efficiency and affordability in order to ensure that Oportunidades continues to stay focused on transferring income to the poor to enhance their human capital.

Certain requirements need to be satisfied for conditionality to work

international experience suggests that CCTs have strong potential to generate high payoffs in terms of the health and education gains of beneficiary children. However, for CCTs to work fully and be translated into longer-term improvements in human capital and labour market outcomes, certain conditions need to be met.

The effectiveness of conditionality depends on monitoring and enforcing sanctions in cases of non-compliance; the extent to which either takes place varies greatly across programmes and countries. international experience reveals


getting it right, strategic agenda for reforms in Mexico © oecd 2013

that the frequency of monitoring ranges from monthly (as was the case in the old Social Risk Mitigation Project in turkey, which ended in 2007) to once a year (Subsidio Familiar [SUF] in chile). the type of sanctions and their enforcement depend on the conditionality imposed, along with the extent of administrative and enforcement capacity at the local and/or central government levels. Under Oportunidades benefits can be withdrawn, either temporarily or definitely, in case of non-compliance, while in chile Solidario imposes only light penalties and SUF no penalties. For example, in the case of Oportunidades, after four months of non-compliance with health co-responsibilities the benefit is withdrawn temporarily, and the withdrawal becomes permanent if the beneficiary sells or exchanges the in-kind benefits (nutritional supplements). However, this works in principle because sanctions are rarely enforced. monitoring and enforcement of sanctions increase the cost of the programme and can have adverse effects on participation in the programmes for the poorest individuals - in particular, or those in poor remote areas, for whom transport costs can be high. Interestingly, there is evidence that mild verification and less-than-perfect enforcement could still work, since the announcement of conditionality in CCT programmes may be enough to induce participants to comply (Grosh et al., 2008).

Effective supply of health and education services of adequate quality is a key factor determining the effectiveness of conditionality (Grosh et al., 2008; Ribe, Robalino and Walker, 2010 on Latin America). Teacher absenteeism and poor infrastructure for schools and clinics are common in emerging economies, and in particular in remote rural areas. The experience of Mexico shows that distance to the nearest school matters for participation in Oportunidades (Grosh et al., 2008; de Janvry and Sadoulet, 2005). This implies that transfer eligibility is not enough to ensure that the household can actually afford the transport cost to reach the nearest school and health centre. Some countries have taken important steps to improve the supply and quality of such services. Chile’s Solidario offers an interesting example of interventions on the supply side in allowing for coordination among health providers, social workers and the municipalities. In the case of Oportunidades, the Mexican government took important initiatives to increase the supply of schools in specific areas of the country by rehabilitating old rural schools and constructing new secondary schools (Levy and Rodriguez, 2004). Further progress towards ensuring an appropriate supply of services could require strengthening collaborations with non-governmental organisations and community groups (see also Chapters 6 and 7 on education and health challenges, respectively).

Moving towards more integrated and complete programmes

A wide range of cash transfers programmes are available in Mexico, tailored to shaping the behaviours of particular groups. According to CONEVAL figures, Mexico currently has 273 fully operational federal social programmes, not counting the social initiatives run by the local authorities (CONEVAL, 2012). One particular source of concern in this complex environment is that many public assistance programmes overlap in terms of objectives, benefits accrued and beneficiaries. there have been efforts to co-ordinate programmes through the creation of special oversight commissions (Comision Intersecretarial and the Comision Nacional de Desarrollo Social) and the introduction of a unified register of beneficiaries. While these measures are welcome, reducing duplications and redundancy could require a more ambitious effort to achieve coordination. Carefully reviewing existing federal and local programmes would represent a necessary preliminary step in this direction.

more generally, international experience suggests that countries have difficulty assessing whether a unique cT programme covering the vulnerable population is sufficient, or if separate programmes targeting specific groups such as children, the elderly, the sick and the disabled, and ethnic minorities are needed. evidence shows that there is no single strategy that will suit all cases, and the decision depends on the incidence and severity of poverty, the types of vulnerable groups, the family and household structure in the country and - very importantly - the political economy of potential reforms in the country. Integrated programmes may effectively cover all the needy individuals while keeping administrative costs down. But there are other ways of exploring synergies across the different programmes, such as by means of common means tests and common administrative offices. Special attention should be paid to ensuring equity if the option of unified targeting across programmes is preferred. This could require making the level of the benefit paid a function of household characteristics and structure. Criteria could include, for instance, the actual number of children, the school grade or the gender of the children, with a higher benefit being envisaged for children in secondary school and for girls. A similar approach based on household composition could be followed when considering the integration of programmes targeting the elderly.

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