Social security systems

NAI acting director Mats Hårsmar participated in a seminar on 23 January on social security systems. The seminar was arranged by the Swedish Church, Swedish Development Forum (FUF) and Concord Sweden. Armando Barrientos, professor and research director at the Brooks World Poverty Institute, University of Manchester, was the keynote speaker.

Can cash transfers contribute to development?

Research shows that it is possible to design social insurance systems so that the misuse of grants can be minimised, and the positive aspects outweigh the negative. The key is the way the system is constructed. In several countries, the social security system proved extremely effective in reducing poverty, especially among the poorest. Figures from Mexico show this clearly, and Rwanda is another example. Social protection is thus important for development and allows people living in poverty to control their own circumstances and to take slightly more financial risk to further increase their incomes, says Mats Hårsmar.

Social security systems require a taxpaying population. However, in many developing countries most people work in the informal sector. Are cash transfers still applicable?
Social security systems have over the last decade grown rapidly in low-and middle-income countries. They are funded mainly by consumption taxes (VAT) and taxes on resource extraction. This is not ideal in terms of distribution effects. However, if security systems are tax-financed they become more legitimate and more widely accepted. Can poor countries afford child support, pensions and labour market initiatives? Well, even if these are expensive, the costs involved are not impossible to bear. And such systems are becoming increasingly common, says Mats Hårsmar.

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