Decentralization and Safety Nets
Safety nets protect a person or household in three types of situations (1) when there is chronic
incapacity to work and earn (e.g., the severely disabled, elderly, young orphans etc.), (2) when there is an unpredictable
"idiosyncratic" shock (e.g., sudden death or serious illness of bread-winner), or (3) when there is an unpredictable
community "covariate" shock (e.g., economic recession, bad harvest, flood). Hence, safety net programs serve two
important roles: redistribution for situations such as (1) (e.g.,income transfers, food supplement programs) and insurance for
situations (2) and (3) (e.g., public works programs, drought relief). A key challenge in the design of safety nets is to
maximize the benefits to the needy and vulnerable for a given cost. Costs include administrative costs, disincentive effects
and political economy costs. For example, an important obstacle to improving the targeting of services and transfers to the poor
is the high costs that can be involved in obtaining accurate information on their incomes and needs (Subbarao et al. 1997,
Beasley and Kanbur, 1993, Van de Walle, 1995).
It has been suggested that decentralizing from national to local level poverty monitoring
and the management of anti-poverty programs can reduce costs and
improve targeting of intended beneficiaries. Local governments
and administrators may be better informed about members of their
community and thus better able to identify their poor.
There is some empirical evidence about this and the experience seems to differ depending on which
level of local government is involved. For example, in Albania, where social assistance allocations are
determined at the commune level (population of about 2500) local
authorities appear to have more information than available
through formal monitoring systems and this enables them to target
the poor more effectively. District officials in Karnataka State, India have attributed a ten-fold increase in
information flow from communities to decentralization. This has
helped to increase the warning time before natural disasters, and
has improved the governments ability to respond and
fend-off potential diseasters. In Vietnam, centrally funded transfers go more
towards the poorer provinces but not necessarily the poorer areas
and people within the provinces. This is because each province
uses different criteria for distributing funds within their
jurisdiction. In Argentina, wealthier provinces appear to be more
effective at targeting federal safety net subsidies to their
poorer areas than poorer provinces.
Many of the benefits of
decentralization seem most apparent at the village level, and
least apparent if decision making rests at the provincial level.
Decentralization at the village level can lead to greater
participation and more effective local development strategies and
thus, enhance the delivery of pro-poor services. But the evidence
is mixed. In some cases, there is also evidence of corruption at
the local level (e.g., India).
In some countries (particularly
the transition countries of
the Former Soviet Union)
national governments have decentralized safety nets with the goal
of lowering the national deficit. But often expenditure
responsibilities have been decentralized without adequate
provisions made for revenue sources. Such unfunded mandates lead
to a deterioration in the quality and quantity of services.
There are many different ways a
safety net program can be decentralized. It is difficult to
discuss the potential advantages or disadvantages of safety net
decentralization, per se, since these will differ depending on
what aspect of the program is decentralized. Different levels of
government can be given responsibility for different aspects of
program design and implementation (e.g., eligibility criteria,
financing, and administration). The design of intergovernmental
grants is also key to determining how each level of government
will participate in the program. Each shall be briefly discussed:
Eligibility
Criteria: Eligibility
criteria can be set at the national level or decentralized to the
subnational level. The main advantages of nationally consistent
targeting criteria are (1) central funds can be distributed to
the greatest number of nationally defined absolute poor or
vulnerable people, regardless of where they live, (2) it is
possible to evaluate the programs consistently across areas to
assess their effectiveness, (3) clearly defined eligibility
criteria set from the center may limit the ability of local
elites to monopolize benefits. The main disadvantage to central
eligibility criteria is that the identification of vulnerable
groups will not reflect local values and preferences. (This need
not be a problem if the locality can raise additional local funds
to supplement the central allocations, but if they are very poor,
they may not be able.) However, depending on local power
dynamics, this may actually not be desirable. Local eligibility
criteria may be appropriate for distributing locally raised
revenues; however, nationally uniform eligibility criteria are
generally recommend for the distribution of central poverty
alleviation or safety net funds.
Project
Implementation: Identifying Individuals according to
predetermined eligibility criteria: Based on criteria set by
the center or a subnational level, individuals or households can
be identified for participation by central administrators in the
locality, local officials from the provincial, district or
village level, or members of local NGOs. Generally, project
implementation is best undertaken at the lowest possible level,
with monitoring by higher levels so as to ensure that standard
eligibility criteria are being followed.
Financing:
A well functioning social safety net is an important element of a braod-based inclusive
growth strategy. Given the objectives of a safety net identified
earlier, the central government has an important role in
financing it. For example, areas which require the most
assistance often have the least local revenues with which to
support safety nets; subnational levels are often unable to deal
with covariate risk. Nevertheless, subnational governments are
also often concerned about household vulnerability and the need
for safety nets and sometimes are able to raise substantial
revenues to supplement central funds. Such co-financing of safety
nets (between levels of government) can be encouraged through the
design of matching intergovernmental transfers. (For example, in India, the centrally sponsored safety net
schemes are generally matched by states).
Design of Intergovernmental Transfers:
Intergovernmental transfers can be either "block" or "specified." For block transfers,
a sum of funding is provided to the local government to deliver a
range of services but actual expenditures are determined at the
local level (e.g., Latvia, Hungary). Since a minimum level of
services is desired by the central government, it is usually
recommended that safety nets not be funded through block grants.
Instead, specified transfers which require the subnational level
to spend the designated funds on safety nets are preferable.
Specified transfers can be "matching" or
"non-matching" grants. The central government can
encourage subnational governments to raise local funds for safety
nets by using matching transfers and they can vary the matching
rates depending on local fiscal capacity. For example, a
wealthier province might receive one central dollar for every
three dollars it raises and spends on safety nets, while a poorer
province might receive three central dollars for every one dollar
it raises and spends on safety nets. While these methods,
combined with centrally determined eligibility criteria can
encourage local governments to deliver safety nets, another
option is for it to administer the program itself through a
representative in the locality. This may be desirable if the
central government cares a lot about access to these services and
has concerns about performance at the local level.
In short,"decentralization"
of safety net financing can involve several different
arrangements. First, the central government can devolve resources
to the province to cover a range of expenditures, including
safety nets. Each province then determines how much it will spend
on safety nets. Second, it can set the criteria by which the
province will select the poor areas to receive funds and create
incentives which will reward provinces for allocating the funds
to the poorer areas within their jurisdiction. A third option, is
for the center to simply ask the province to "pass on"
the central funds to the villages and households which it has
identified as vulnerable. The second option is likely to be most
effective.
Monitoring:To determine if
funds are being targeted to the appropriate individuals and areas
it is important to have information on program expenditures and
household and village characteristics. Although there are many
different design possibilities for decentralized safety net
programs, ultimately, the central government, whether it is
involved in financing safety nets or not, should monitor the
programs. Information is best collected regularly and maintained
at the subnational level. |