Selected for the Global Economic Symposium 2010
In most developing countries, governments undertake large poverty alleviation programs whereby specific goods and services are transferred to those who are unable to afford them in the free market. These programs are targeted (at the poor) and conditional (for particular goods and services). But targeting generates incentive problems (the poor have reduced incentive to become productive) and leakage (some people receive benefits even though they don’t need them and others who need them don’t receive them). Conditionality gives rise to monitoring and enforcement problems, leading to opportunities for corruption. Furthermore, governments face the problem of making the goods and services available at the right time in the rightplace. These various problems reduce countries’ growth potential and hinder poverty alleviation.
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Should traditional government in-kind subsidies to the poor be replaced by cash transfers to the poor? Should the cash transfers be conditional (for specific goods and services) or unconditional?
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Should unconditional cash transfers be combined with a negative income tax, leaving the government to focus on regulatory activities?
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What is the role of new technologies, such as biometric smart cards and electronic bank accounts in implementing such an approach?
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If such changes are desirable, what are the concrete institutional and policy changes required?
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Can market-friendly mechanisms be designed that enable households and businesses, in the pursuit of their own interests, to reduce poverty by stimulating growth?
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Can poverty be effectively reduced through profitable business activity that promotes financial inclusion?
- Can new financial instruments facilitate such a process?
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What, for example, is the future of micro finance and how can its effectiveness be improved?
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What legal and regulatory framework and what international support is required for such opportunities to be exploited?