The World Bank has published a new report, Toward a New Social Contract: Taking on distributional tensions in Europe and Central Asia.
The nature of the initiatives implemented to realize the objective of providing guaranteed minimum protection among the population will vary by country. Fiscal and political considerations are crucial. There are advantages and disadvantages to means testing and to universal approaches. Income-based targeted schemes, well established in many countries in the region, can be used to supply generous transfers by assisting the people most in need. However, that may leave many people unprotected, including the many nonpoor who are vulnerable. Complex eligibility rules, stigma effects, a lack of knowledge among potential beneficiaries, and the administrative burden of delivering and receiving the benefits are some of the obstacles. Universal approaches to social assistance may address some of these challenges.
The universal basic income (UBI) being discussed in many forums could provide broader protection and security to the population through greater coverage and take-up, and it would reduce disincentives to w ork. Yet, a UBI may be associated with other challenges. Depending on the design, it might entail a substantial fiscal burden, and the feasibility and equity impacts of implementing a UBI relative to other approaches must be weighed. A pure UBI—a minimum income transfer to all individuals—does not exist in the region, but categorical unconditional cash transfers are being provided as a benefit among population groups such as children and the elderly.
The emergence of distributional tensions represents a clear message: the growing economic insecurity affecting nonpoor households is a call for a review of the design and coverage of social assistance. …
… There is no single solution to all the ills in every country, and the response to these problems varies considerably across the region. However, this report proposes three broad policy principles:
- Promote labor market flexibility, while maintaining protection for all types of labor contracts.
- Seek universality in the provision of social assistance, social insurance, and basic quality services.
- Expand the tax base by complementing progressive labor income taxation with the taxation of capital.
To read the report, click here.