The political economy of social protection adoption

In this paper, we present evidence that indicates that democratization has had a positive and significant effect on the current expansion of social transfers in low- and middle income countries. Overall, we find that electoral democracies seem to have favoured the expansion of conditional cash transfer (CCTs) programmes and social pensions, whereas autocracies and infant electoral democracies seem to have favoured pure cash transfers and public works, which are, on average, smaller in scale and more prone to political clientelism. Our findings also show that consumption taxes, and natural resource rents in particular, have contributed to the expansion of social transfers over the past two decades, although at the cost of delaying tax reforms that are necessary to guarantee the survival of welfare benefits. The current tax structure has also exposed net resource-exporting countries to the vagaries of commodity markets and reduced the fiscal space that these countries enjoyed just a decade ago. The policy implications of our findings are threefold: first, a strong technical approach to the formulation of social transfers is clearly desirable to maximize the poverty-reducing and welfare-enhancing effects of these programmes. However, a narrow focus on technical considerations can miss out wider implications of certain policy choices, especially in contexts characterized by electoral autocratic regimes. Second, state capabilities matter for an effective distribution of welfare benefits. However, without strong institutional settings and effective checks and balances, pro-poor redistribution can be subject to the capture of opportunistic clientelistic regimes. Third, any effort to expand social protection systems without parallel reforms to tax systems risks the long-term sustainability of transfer programmes. However, attempts to introduce more progressive forms of taxation would be destinated to fail without a good understanding of the strength and upfront position of elites.