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Designing a Social Safety Net

Baganda is a country in Sub-Saharan Africa that has the characteristics of a typical mediumsized country at the 25th percentile of the world income distribution. Assume Baganda occupies this rank on every development indicator. Alternatively, you can assume Baganda shares the characteristics of some specific developing country at approximately this income level. Baganda has a population of 50 million. The prime minister of Baganda wants to create a national social protection program, and has asked for your advice on the type of safety net Baganda should implement. Some (but not all) of the options on the table are: • A universal basic income, where every individual would receive a simple cash transfer, including individuals who are not poor. • A means-tested targeted conditional cash transfer program, like Progresa/Oportunidades. This program would provide cash transfers to families who are poor (defined by some objective criteria), on condition that they participate in certain social services, like antenatal care, sending kids under some age to school, etc.. • A means-tested public distribution system that provides subsidized food and non-food items to households below the poverty line, such as India’s Public Distribution System. • A work guarantee program similar to India’s National Rural Employment Guarantee Scheme(NREGS). Under this program, each person in the country is guaranteed 100 days of work at a minimum wage. The work tends to focus on public works projects like irrigation canals. • A wage subsidy, like the U.S. Earned Income Tax Credit. This is a means-tested program that tops up individuals’ wages. In the U.S., if I work a sufficient number of hours and make under, say, $40,000, I would receive a tax credit that works something like a wage supplement. Your task is to write a one page policy memo outlining the key parameters of the policy that you think is best. Keep the following in mind: 1. Focus on only a few dimensions of program design. You do not have enough room in one page to outline every aspect of the program. So focus on a few details that you think are essential to get right. 2. Provide a clear analysis of the costs and benefits of the program dimensions that you are concerned with. Your policy memo should be strongly analytical, as opposed to just describing a long list of policies. If you think the program should depend on X , explain why you think that X is important. Your grade will come from the quality of your argument, not from the choice of policy. 3. You do not have to choose one of the policies above. This is just to give you some idea of the scope of the question. 4. I encourage you to keep it simple. If your proposed policy has too many levers and components, you will not have enough space to explain why any of these are good ideas. 5. It would probably be a good idea to refer to at least some empirical evidence on what has been successful or unsuccessful in other locations. 6. You are encouraged to think about implementation and the political benefits and costs details if you think they are important. Some questions you might want to consider as you prepare your recommendation: • What will the program cost? How will it be financed? Be specific, and use numbers. If you need a specific statistic for Baganda (like a poverty headcount), invent a number following the 25th percentile guideline above. • Once created, will this program cause desirable or undesirable behavior change? Will individuals or government officials try to cheat this program? • How will the (25th percentile) quality of governance in Baganda affect the implementation of this program? • Should the policy be rolled out all at once or should it begin in regions with certain characteristics? Recommended readings: 2 • Do your own searches for descriptions of safety nets in other countries, such as PROGRESA, NREGS, or India’s Public Distribution System. • The World Bank’s recent report on The State of Social Safety Nets • The World Bank’s recent report on Conditional Cash Transfers. (I don’t recommend you try to read all of these lengthy reports — read the summaries and skim parts that are useful to you.) • The introduction to this experimental paper(for example) has a good description of the role of ordeals in targeting. The results are interesting too, but you shouldn’t overgeneralize their external validity. Your policy memo should be one page, and should obey all the formatting requirements of previous policy memos, including font size, margins, etc.. You may include a second page with references. Like most countries in its income range, most of Baganda’s fiscal revenue comes from tariffs and taxes on the small formal sector, including government employees. 15% of revenue is from overseas development assistance, i.e. foreign aid. You can make whatever assumptions you need to about Baganda to go ahead with your policy memo, as long as they are credible for a country of Baganda’s income level.

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