Revenue collection and social policies: Their underestimated contribution to social cohesion

Bu chi, F ancesco; S upa , Ch is oph; on Schille , A min Resea ch Repo Re enue collec ion and social policies: Thei unde es ima ed con ibu ion o social cohesion B ie ing Pape , No. 1/2020 P o ided in Coope a ion wi h: Ge man Ins i u e o De elopmen and Sus ainabili y (IDOS), Bonn Sugges ed Ci a ion: Bu chi, F ancesco; S upa , Ch is oph; on Schille , A min (2020) : Re enue collec ion and social policies: Thei unde es ima ed con ibu ion o social cohesion, B ie ing Pape , No. 1/2020, Deu sches Ins i u ü En wicklungspoli ik (DIE), Bonn, h ps://doi.o g/10.23661/bp1.2020 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/213835 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen (insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en, gel en abweichend on diesen Nu zungsbedingungen die in de do genann en Lizenz gewäh en Nu zungs ech e. Te ms o use: Documen s in EconS o may be sa ed and copied o you pe sonal and schola ly pu poses. You a e no o copy documen s o public o comme cial pu poses, o exhibi he documen s publicly, o make hem publicly a ailable on he in e ne , o o dis ibu e o o he wise use he documen s in public. I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h ps://c ea i ecommons.o g/licenses/by/4.0/ Summa y Social cohesion is an impo an p econdi ion o peace ul and economically success ul socie ies. The ques ion o how socie ies hold oge he and which policies enhance social cohesion has become a ele an opic on bo h na ional and in e na ional agendas. This B ie ing Pape s esses he con ibu ion o e enue collec ion and social policies, and in pa icula he in e linkages be ween he wo. I is e iden ha e enue mobilisa ion and social policies a e in insically in e wined. I is impossible o hink ca e ully abou ei he independen ly o he o he . In pa icula , e enue is needed o inance mo e ambi ious social policies and allow coun ies o each goals, such as hose included in he 2030 Agenda o Sus ainable De elopmen . Simila ly, be e social policies can inc ease he accep ance o highe axes and ees. Fu he mo e, and o en unde es ima ed, a be e unde s anding o he in e linkages be ween e enue gene a ion and social policies can p o ide a signi ican con ibu ion o s eng hening social cohesion – in pa icula , conce ning s a e–ci izen ela ionships. In o de o shed ligh on hese in e linkages, i is use ul o ha e a close look a he concep o he “ iscal con ac ”, which is based on he co e idea ha go e nmen s exchange public se ices o e enue. Fiscal con ac s can be cha ac e ised along wo dimensions: (i) le el o endo semen , ha is, he numbe o ac o s and g oups ha a leas accep , and ideally p oac i ely suppo , he iscal con ac , and (ii) le el o in ol emen , ha is, he sha e o he popula ion ha is in ol ed as axpaye , as bene icia y o social policies o bo h. In many de eloping coun ies, ei he because o incapaci y o biased s a e ac ion owa ds eli e g oups, he le el o in ol emen is a he low. Gi en he common pe cep ion ha policies a e unjus and ine icien , in many de eloping coun ies he le el o endo semen is also low. I is p ecisely in hese con ex s ha in e en ions on ei he side o he public budge a e c ucial and can ha e a signi ican socie al e ec beyond he iscal ealm. We a gue ha de elopmen p og ammes need o be especially awa e o he po en ial impac s (nega i e and posi i e) ha wo k on e enue collec ion and social policies can ha e on he iscal con ac and beyond, and we call on dono s and policy-make s alike o ecognise hese a eas as ele an o social cohesion. We speci ically iden i y h ee key mechanisms connec ing social policies and e enue collec ion h ough which policy-make s could s eng hen he iscal con ac and, he eby, enhance social cohesion: 1. Inc easing he e ec i eness and/o co e age o public social policies. These in e en ions could imp o e he pe cep ions ha people – and no only he di ec bene icia ies – ha e o he s a e, aising hei willingness o pay axes and, wi h ha , imp o ing e enues. 2. B oadening he ax base. This is likely o gene a e new e enue ha can inance new policies, bu mo e impo an ly i will inc ease he le el o in ol emen , which will ha e o he e ec s, such as inc easing go e nmen esponsi eness and accoun abili y in he use o public esou ces. 3. Enhancing anspa ency. This can s imula e public deba e and a ec people’s pe cep ions o he iscal sys em. In o de o ob ain his esul , go e nmen campaigns aimed a di using in o ma ion abou he main ea u es o policies ealised a e pa icula ly use ul, as a e in e en ions o imp o e he moni o ing and e alua ion sys em. B ie ing Pape 01/2020 Re enue Collec ion and Social Policies: Thei Unde es ima ed Con ibu ion o Social Cohesion Re enue collec ion and social policies: hei unde es ima ed con ibu ion o social cohesion In oduc ion Se e al in e na ional ends, including clima e change, demog aphic change, mig a ion and ising inequali y, a e pu ing en i e socie ies unde p essu e. Bo h policy-make s and academics ha e ied o unde s and he deg ee o (and he changes in) social cohesion in hese socie ies, as a cha ac e is ic ha should enable socie ies o handle hese p essu es mo e e ec i ely and peace ully. How can policy-make s enhance social cohesion? This B ie ing Pape s esses he ole o e enue collec ion and social policies, and in pa icula he in e linkages be ween hese wo a eas, which can be exploi ed o design social cohesion-enhancing de elopmen in e en ions. In pa icula , we a gue ha low le els o ci izens’ in ol emen and suppo o he iscal con ac will ansla e in o a lowe le el o social cohesion, in pa icula i s dimensions cen ed a ound s a e–ci izen ela ionships. I is e iden ha e enue mobilisa ion and social policies a e in insically in e wined. I is impossible o hink ca e ully abou ei he o hese policy ields independen ly o he o he . Wi hou su icien domes ic e enue, mo e ambi ious social policies ha enable coun ies o each in e na ional goals, such as hose included in he 2030 Agenda, canno be achie ed. Dono s can help in inancing social policies, bu hese will no be sus ainable – nei he echnically no poli ically – i o e ime he inancing o hese sys ems is no based on own-gene a ed e enue. This is especially a p oblem in sub-Saha an A ica, whe e social p o ec ion schemes a e p edominan ly – and in some cases, almos en i ely – inanced by dono s. Simila ly, i is o be expec ed ha inc easing he accep ance o ci izens o pay axes and he eby s eng hen e enue collec ion will hinge upon hei pe cep ions o how much hey can expec o ge in exchange o hei con ibu ion. Hence, he design and con en o social policies, as well as he pe cep ions o whe he he bene i s and cos s a e dis ibu ed ai ly among all axpaye s, a e o cen al ele ance. Howe e , mos echnical discussions es ic hemsel es o ei he he e enue o social policy design ques ions. This is highly p oblema ical as i hinde s he de elopmen o an in eg a ed pe spec i e o public inancial managemen along he lines o he concep o good inancial go e nance p omo ed by he Ge man Fede al Minis y o Economic Coope a ion and De elopmen (BMZ, 2014). Thus, such discussions o e look de imen al e ec s on he e ec i eness and e iciency o iscal sys ems due o in e linkages be ween social policy and e enue gene a ion. Mo eo e , his na ow iew ails o conside all he a - eaching consequences ha decisions in his ield ha e on he social and poli ical ealm. In pa icula , we a gue ha a be e unde s anding o he in e linkages be ween e enue mobilisa ion and social policies can p o ide a signi ican con ibu ion o s eng hening social cohesion h ough hei impac on he iscal con ac . The concep o he iscal con ac , in essence, alludes o he common unde s anding in a socie y o how much i s membe s can expec o bene i om s a e ac ion and how much hey expec o con ibu e o i h ough paying e enue. The deg ee o which indi iduals wi hin a socie y endo se and a e in ol ed in he iscal con ac is c ucial o social cohesion. Coun ies wi h iscal con ac s cha ac e ised by high le els o endo semen and in ol emen will end o ha e high le els o social cohesion. Cha ac e ising he iscal con ac The iscal con ac can be concei ed as an equilib ium posi ion in a socie y wi h espec o he size and na u e o he iscal sys em. The iscal con ac implies a le el o exchange o e enue o public se ices be ween axpaye s and he go e nmen . I has an indi idual and an agg ega ed dimension, as i will no only in luence he agg ega e le el o e enue and spending, bu also who inances and bene i s indi idually om s a e in e en ions. Na u ally, he ne iscal e ec o indi iduals will a y emendously in a socie y. Con en -wise, he iscal con ac also a ies g ea ly be ween coun ies: coun ies wi h a s onge wel a e s a e, o example, usually ha e hei equilib ium a high le els o bo h e enue and social spending, while o he s, o ins ance many de eloping coun ies, ha e a low ax–low social spending equilib ium. Fiscal con ac s e lec poli ical and social powe ela ions in a socie y, which limi he scope o e enue–social spending equilib iums ha a e poli ically easible a he indi idual and a he agg ega ed le el (see Figu e 1). This also implies ha o a ce ain deg ee a iscal con ac can be implici and imposed agains he will o some ci izens, and ha , al hough hey end o be s able, iscal con ac s can e ol e and change o e ime. Fiscal con ac s a he agg ega ed le el can be cha ac e ised along wo dimensions. The i s is he le el o endo semen , ha is, he numbe o people and g oups ha a leas accep , and ideally p oac i ely sus ain o suppo , he p e ailing iscal con ac . In p ac ice, i is impossible o ha e a iscal con ac unanimously suppo ed. To wha ex en a pe son suppo s Box 1: De ining social cohesion Despi e being a con o e sial concep , i is possible o iden i y some key pilla s o social cohesion. These a e inco po a ed in he ecen DIE de ini ion: Social cohesion e e s o bo h he e ical and he ho izon al ela ions among membe s o socie y and he s a e as cha ac e ised by a se o a i udes and no ms ha includes us , an inclusi e iden i y and coope a ion o he common good. Figu e 1: Fiscal con ac as equilib ium Sou ce: Au ho s he iscal con ac depends i s o all on hei pe cep ion o he ne iscal e ec on hei own li ing s anda ds. This could also include pe cei ed indi ec e u ns in e ms o social s abili y and peace gene a ed by highe social spending. People, howe e , may also suppo he iscal con ac o less “sel -in e es ed” easons: hey may ca e abou he condi ions o he poo , e en hough hey a e no hemsel es poo . The second dimension o he iscal con ac is he le el o in ol emen , ha is, he sha e o he popula ion ha is in ol ed ei he as ax paye o bene icia y o social policies, o bo h. Unlike in high-income coun ies, in de eloping coun ies he le el o in ol emen can be qui e low: o en, many ci izens do no ha e much o a ela ionship wi h he s a e, which ends o be only ma ginally p esen in hei daily li e. The wo dimensions do no necessa ily go hand in hand. Fo example, some socie ies may no alue comp ehensi e wel a e s a es, which a e cha ac e ised by a high le el o in ol emen . In his si ua ion, he le el o endo semen will dec ease a a highe le el o in ol emen . How social policies and e enue collec ion can a ec he iscal con ac Fiscal con ac heo ies sugges ha he s a e will be esponsi e o he in e es s o hose indi iduals paying axes by p io i ising he spending hey a ou . Empi ical e idence o high and middle-income coun ies shows ha coun ies which ely p edominan ly on axing low and middle-income ea ne s p o ide mo e social bene i s han s a es elying mo e hea ily on high-income ea ne s (Timmons, 2005). This empi ical e idence unde pins he iscal con ac logic ha s a es p o ide se ices in exchange o e enue. The pic u e is less clea in low-income coun ies. Social policies a e inanced less by domes ic axes and mo e by dono s. This blu s he connec ion be ween spending and e enue collec ion. We a gue ha in hese con ex s, de elopmen in e en ions on social spending and e enue collec ion can ha e a majo impac on he iscal con ac by igge ing a i uous cycle ha s eng hens i . This i uous cycle can be ini ia ed om se e al angles. Fi s , s a ing om he social policy side, in oducing new social policies o expanding and imp o ing al eady exis ing ones may imp o e pe cep ions o hei bene i s. In u n, his can inc ease bene icia ies’ willingness o pay axes and, hus, aise e enue. This may occu also o people ha a e no di ec ly eligible o social p o ec ion p og ammes, such as cash ans e s: in pa icula , hose jus abo e he eligibili y c i e ia may be happy o ha e a sa e y ne in case hei li ing s anda ds de e io a e. Well- unc ioning social policies, ideally inanced om he public budge – e en when a ge ed a he poo – could be suppo ed, o a leas ole a ed, by he be e - o . This is especially he case when hey pe cei e he impo ance o educing inequali y and po e y o socie al s abili y, and a e awa e ha hey a e bene i ing om hese polices. Expanding social p og ammes, hus, can inc ease he le el o in ol emen in he iscal con ac . Fu he mo e, he p o ec i e unc ion o social p o ec ion p og ammes can inc ease endo semen o he iscal con ac as many non- bene icia ies could po en ially bene i om he sa e y ne in imes o ha dship. Second, he i uous cycle can also be s a ed by in e en ions on he e enue side. B oadening he ax base, meaning inc easing he numbe o axpaye s and educing he size o he some imes inc edibly la ge in o mal sec o , can a ec social policy and he iscal con ac h ough wo main channels. On he one hand, i will p obably lead o an inc ease in he amoun o e enue collec ed, and he eby inc ease he po en ial budge o social policies. On he o he hand, a b oade ax base inc eases in ol emen in he iscal con ac and s eng hens go e nmen accoun abili y and esponsi eness in he use o public esou ces. Exis ing li e a u e sugges s ha axpaye s, by ac i ely con ibu ing o e enue e o s, de elop a sense o owne ship o public e enue. New axpaye s will hence inc ease p essu e on go e nmen s o explain wha is done wi h public money and demand ha public budge s be e mi o hei p e e ences. This would e en ually lead o a highe le el o endo semen o he iscal con ac . Ea ma king is an ex eme op ion o go e nmen s o c edibly commi o use esou ces o se ices ha axpaye s alue. I can be an a ac i e ool, bu gi en he igidi ies i gene a es in he budge and he isks o i s poli ical misuse, i should be only used ca e ully, i a all. The iscal con ac – in e ms o con en s and how i is pe cei ed – can also be s ongly a ec ed by ini ia i es ocusing on anspa ency ega ding he use o esou ces and how cos s and bene i s a e dis ibu ed among he ci izens. This can s imula e public deba e and lead o a change in people’s pe cep ions abou he pe o mance and he ai ness o he sys em. This equi es ha public ins i u ions p o ide mo e in o ma ion abou he policies implemen ed, whom hey each, how much hey cos and how hey a e inanced. I also en ails ensu ing adequa e moni o ing and e alua ion capaci ies, and se ing up a anspa en p ocu emen sys em. Mo e anspa en and e icien managemen o he public budge can libe a e esou ces, which could be spen o u he s eng hen he social policy sys em o allow a educ ion o he ax bu den o indi idual g oups o socie y in gene al. All o his will con ibu e o a highe le el o endo semen o he iscal sys em. Any in e en ion suppo ing he le el o endo semen o in ol emen equi es well- unc ioning s a e ins i u ions. This is why measu es in his a ea should be closely coo dina ed wi h he b oade go e nance agenda o maximise hei e ec on he iscal con ac and social cohesion. How he iscal con ac a ec s social cohesion I is plausible o expec he mechanisms ske ched abo e o a ec dimensions ha go well beyond he iscal ealm and en e in o he poli ical and social ones. Fiscal con ac s ha lack endo semen and a e imposed agains he will o socie y (o la ge g oups o i ) can inc ease pe cep ions o un ai ness, weaken he e ical ela ions be ween socie y and he s a e and he eby unde mine social cohesion. By con as , ini ia i es ha lead o mo e suppo o he exis ing iscal con ac o i s e o mula ion in o a mo e suppo ed one can con ibu e o de eloping and s eng hening a common F ancesco Bu chi / Ch is oph S upa / A min on Schille © Ge man De elopmen Ins i u e / Deu sches Ins i u ü En wicklungspoli ik (DIE) Tulpen eld 6 · 53113 Bonn · Ge many · Tel.: +49 (0)228 94927-0 · Fax: +49 (0)228 94927-130 [email p o ec ed] · www.die-gdi.de · wi e .com/DIE_GDI · www. acebook.com/DIE.Bonn · www.you ube.com/DIEnews lash ISSN 1615-5483 The DIE is a mul idisciplina y esea ch, policy ad ice and aining ins i u e o Ge many’s bila e al and o mul ila e al de elopmen co-ope a ion. On he basis o independen esea ch, i ac s as consul an o public ins i u ions in Ge many and ab oad on cu en issues o co-ope a ion be ween de eloped and de eloping coun ies. iden i y and mu ual us ac oss indi iduals and di e en socie al g oups. Mo e suppo indica es a mo e sha ed unde s anding o how membe s o a socie y a e linked and he deg ee o which hey ha e igh s and esponsibili ies o each o he . In his line, highe endo semen will be connec ed o be e ho izon al ela ions among membe s o socie y, as well as mo e cons uc i e ela ions be ween he s a e and socie y. Fiscal con ac s wi h high le els o in ol emen a e also expec ed o con ibu e o social cohesion. Expanding he le el o in ol emen will na u ally inc ease in e ac ion in a socie y and will each ou o people ha li e independen ly o he s a e. This ouches upon poli ically and socially loaded issues, which inc ease he possibili y o con on a ion bu can also be used as ocal poin s o ind comp omises and ag eemen s leading o mo e cohesi e socie ies. Thus, simila ly o he e ec o inc easing endo semen , expanding he le el o in ol emen can acili a e dialogue be ween g oups and he de elopmen o a common ision and iden i y, and c ea e oppo uni ies o b idge us gaps be ween socie al g oups. O e all, we a gue ha coun ies wi h iscal con ac s cha ac e ised by high le els o endo semen and in ol emen will end o ha e high le els o social cohesion. The join e ec o inc eases in bo h dimensions should be highe han he indi idual e ec o an inc ease in one dimension. Assuming ha he alue o he o he dimension emains cons an , an inc ease in endo semen o in ol emen can be expec ed o con ibu e o highe social cohesion. Conclusion and policy implica ions Re enue collec ion and social policies a e in e connec ed. Especially in de eloping coun ies, be e e enue collec ion is a p econdi ion o mo e ambi ious and iscally sus ainable social policies. Simila ly, only i a social sys em pe o ms well, will ci izens be willing o con ibu e o i . The ela ionship is he e o e a cycle ha can be i uous, bu o en u ns ou o be icious. The s eng h o hese in e linkages is oo o en unde es ima ed. By a ec ing he iscal con ac , in e en ions on social policies and e enue collec ion ha e a signi ican impac on social cohesion. These in e linkages and hei impac can be posi i e and nega i e bu mos impo an ly, hey should no be igno ed. The key is ha e enue gene a ion and social policies a e no pe cei ed as a me ely echnical budge a y ma e , and hei po en ial o igge he de elopmen o mo e cohesi e socie ies is ecognised. In his ega d, we ha e highligh ed h ee mechanisms connec ing social policies and e enue collec ion ha appea pa icula ly p omising o policy- make s o conside . Conc e e measu es o ac i a e hese mechanisms include: 1. Inc easing he e ec i eness and/o he co e age o social policies. Highe co e age can be achie ed by implemen ing social policies ha a e uni e sal and lead o equal oppo uni ies o all. 2. B oadening he ax base. Reducing he numbe o exemp ions is he bes place o s a . This would also help o educe he ax sys em’s complexi y and he oppo uni ies o co up ion associa ed wi h disc e iona y g an ing o exemp ions. Mo e obus implemen a ion o p ope y axa ion a he subna ional le el is ano he pa icula ly p omising a enue. 3. Inc easing he adop ion o anspa en p ocedu es, which can s imula e public deba e and in luence people’s pe cep ions o he iscal sys em. This can be achie ed h ough in o ma ion campaigns abou he policies ealised, including hei cos s and inancial sou ces, o h ough an imp o emen o he moni o ing and e alua ion sys em. Dono s can and should play a ole in enabling he ac i a ion o hese mechanisms. Howe e , as in he discussion a ound he b oade concep o he social con ac (Loewe, T au ne , & Zin l, 2019), i is undamen al ha dono s a e awa e o he po en ial nega i e consequences ha hei ex e nal in e en ions can ha e on he domes ic iscal ba gaining p ocesses. Re e ences BMZ (Bundesminis e ium ü wi scha liche Zusammena bei und En wicklung). (2014). Good Financial Go enance in de deu schen En wicklungszusammena bei (BMZ- S a egiepapie 4). Bonn: BMZ. Re ie ed om h p://www.bmz.de/de/media hek/publika ionen/ eihen/s a egiepapie e/S a egiepapie 343_04_2014.pd Loewe, M., T au ne , B., & Zin l, T. (2019). The social con ac : an analy ical ool o coun ies in he Middle Eas and No h A ica (MENA) and beyond (B ie ing Pape 17/2019). Bonn: Ge man De elopmen Ins i u e / Deu sches Ins i u ü En wicklungspoli ik (DIE). Timmons, J. F. (2005). The iscal con ac : S a es, axes, and public se ices. Wo ld Poli ics, 57(4), 530-56. Published wi h inancial suppo om he Ge man Fede al Minis y o Economic Coope a ion and De elopmen (BMZ). DOI: 10.23661/bp1.2020 This Open-Access-Publica ion is ee o ead (h ps://www.die-gdi.de/publika ionen/b ie ing-pape /), sha e and adap unde he e ms o he CC BY 4.0 license. D F ancesco Bu chi Senio Resea che “T ans o ma ion o Economic and Social Sys ems” Ge man De elopmen Ins i u e/ Deu sches Ins i u ü En wicklungspoli ik (DIE) D Ch is oph S upa Senio Resea che “T ans o ma ion o Economic and Social Sys ems” Ge man De elopmen Ins i u e/ Deu sches Ins i u ü En wicklungspoli ik (DIE) A min on Schille , PhD Resea che “T ans o ma ion o Poli ical (Dis-)o de ” Ge man De elopmen Ins i u e/ Deu sches Ins i u ü En wicklungspoli ik (DIE) Re enue collec ion and social policies: hei unde es ima ed con ibu ion o social cohesion