In the Sustainable Development Goals (SDG), world leaders committed to combat inequalities when delivering on the 17 goals for people, planet and prosperity, pledging that “no one will be left behind […] and we will endeavour to reach the furthest behind first”. This requires decision-makers to better understand if public policies more broadly – and public spending on social sectors such as health, education and social protection more specifically – are indeed benefiting the poorest groups of society.
Now, for the first time data is available for a large number of countries, providing important insights into the distributional effects of spending. This data shows that public spending in most countries is somewhat pro-poor, but also highlights important differences between countries and sectors.
Measuring pro-poor spending
Measuring pro-poor public spending requires a distributional analysis of public budgets (“benefit incidence analysis”) to understand which individuals or households are benefiting from social sector spending on health, education or direct transfers. The World Bank as well as the Commitment to Equity (CEQ) Institute have conducted such analyses for many years now, building a global evidence base to capture the impact of fiscal policy on poverty and inequality.
In addition to these comprehensive assessments covering many low- and middle-income countries, other datasets cover the incidence of spending for selected sectors. For instance, the Organisation for Economic Cooperation and Development (OECD) furthermore measures the distributional effects of direct transfers for a smaller group of mostly high-income countries. The World Bank’s ASPIRE project also includes data on benefit incidence analyses for social protection, and UNICEF estimated previously the proportion of education spending that benefited the poorest 20% of society.
Since 2020, indicator 1.b.1 on ‘pro-poor public social spending’ measures the proportion of social spending (health, education, direct transfers) benefiting the poorest 20% of people. This provides crucial evidence on distribution of investments in human development, as those are key drivers of inequality reductions (a related indicator 10.4.2 measures how much broader fiscal policy reduces inequality, assessing government effectiveness in tackling inequality through both tax policies and government spending).
After the UN Statistical Commission adopted a revision for indicator 1.b.1 in early March, globally comparable data on pro-poor spending in at least one sector is available for 133 countries, 51 of them cover all three sectors (see Figure 1).
Figure 1: Pro-poor social spending: Proportion of public spending on direct transfers, education, and health, which benefit the poorest 20% of the income distribution
The proportion of spending benefiting the bottom 20% ranges from 10% to 39%, and in a typical country the proportion is 26%.
While in the majority of countries spending is pro-poor, there are important differences among the sectors. Direct transfers is on average the most pro-poor sector, with 32% of cash and near-cash transfers benefiting the poorest 20% (with a maximum of 93%). Education spending is on average only slightly pro-poor, with 22% of spending benefiting people in the bottom 20% of the income distribution (with data ranging from 3% to 35% across countries). Health spending benefiting the poorest 20% varies significantly between countries, ranging from 9% to 59% with an average of 19%.
Pro-poor spending to realise child rights
Finally, there is also suggestive evidence that more pro-poor spending increases opportunities to realise child rights and to promote human development outcomes, although data is still very limited. Across a small sample for which data is available, countries where a higher share of their spending on health and education benefited the poorest quintiles of households were on average also seeing higher values of the Human Capital Index (HCI, a composite measure combining health, nutrition and education) in the respective quintiles (See Figure 2). While more evidence is needed to study this relationship in detail, this example illustrates the potential insights that can be gained through measuring pro-poor spending comprehensively and comparably.
Figure 2: Pro-poor social spending on education and health vs. disaggregated Human Capital Index
In summary
Data on the impact of fiscal policy on poverty and inequality is crucial evidence for decision-makers to create pro-poor development strategies. It also supports stakeholders in civil society, academia, or multilateral organisations to track progress on key SDG targets, enabling accountability and transparency. Increasing data coverage and granularity also allows to build a stronger foundation for future analyses of the link between pro-poor public policy and outcomes for populations living in poverty.
Such indicators are not only crucial to make better decisions and hold policymakers to account, but are also important to facilitate conversations on data measurement and reporting processes. Some National Statistical Offices already started to collect data and conduct benefit incidence analyses themselves to report on these indicators.
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