Poverty and Social Impact Analysis: a Users Guide Economic tools

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Poverty and Social Impact Analysis a Users
Guide Economic tools

• Nairobi, 6-8th December 2006

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Introduction

• The choice of the methodology or economic tool to
  be applied is highly dependent
• Indirect impacts scale of the reform, importance
  to the economy and time horizon. (Nature of the
  reform)
• Data availability
• Timeframe
• Local capacity

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Economic Tools to Analise Impact
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1. Direct Impact Analisys

• Question who is directly affected by a policy
  change and by how much.
• Assumption No behaviourial reaction from
  affected households or groups - suitable for
  short-term impacts and no general equilibrium
  effects
• Tools incidence analysis, poverty mapping, tools
  to assess public service delivery.

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1.1. Incidence Analysis

• Objective To estimate the distributional
  incidence of a component of income/consumption at
  the household level.
• Which households are exposed to a policy change
  useful for expenditure or tax reforms.
• Simple incidence analysis the incidence of the
  average expenditure.
• Marginal incidence analysis the incidence of the
  last or next unit of expenditure.

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1.2. Poverty Maps

• Objective to display a geographical profiles of
  spatial distribution of poverty within a country,
  and suggest where policies might have the
  greatest impact on poverty reduction.
• Application public investment decision on
  health, education, rural roads.
• Shortcoming very intensive on disaggregated data

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1.3. Tools to assess public service delivery

• Objective to allow analysts to measure the
  efficiency of public spending and the delivery
  performance through assessing leakages and their
  sources, captures of financial flows, and
  incentives and accountability mechanisms at all
  stages of the expenditure chain.
• Application analysis of the efficiency and
  quality of health and education service delivery.

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2. Behavioural Analysis

• Objective to go beyond direct impact analysis to
  recognize some behavioural responses among
  households and economic agents.
• Assumption households doreact to an exogenous
  policy shock based on behavioural specifications
  and model assumptions.
• Tools behavioral incidence analysis,
  demand/supply analysis, and household models.

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2.1.Behavioural Incidence Analysis

• Objetive to combine incidence analysis with
  econometric estimates of household behaviour.
• Application expanding acess to education,
  disencitive effects of welfare programmes.

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2.2.Demand and Suply Analyses

• Objective to estimate the responses of consumers
  and producers, respectively, to price changes.
• Application
• Demand willingness to pay public utility
  reforms. It models the consumers reaction.
• Supply agriculture trade reform (quota
  elimination), subsidies, rural roads. It models
  the producers reaction.

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2.3.Household Models

• Objective to analyze impacts by taking account
  of households as both consumers and producers.
• Application agriculture (hh is both producer and
  consumer) and also huge tax reforms.

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3. Partial Equilibrium Analysis

• Objective to equate supply and demand in one or
  more markets so that prices clear at their
  equilibrium level.
• Assumption allow for indirect impacts that occur
  when changes in one market affect other markets,
  but only in the relevant markets for the model.
• Toolsmultimarket models and reduced form
  techniques.

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3.1. Multimarket Models

• Objective to estimate systems of supply and
  demand relationships, so that the analyst can see
  how policies in one sector impact on other
  related sectors.
• Application agriculture policy changes
  (subsidies, technical change, liberalisation)

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3.2. Reduced-form Estimation

• Objective to simulate the impact of different
  policy variables on poverty and social outcomes.
• Application direct impact on poverty (income or
  consumption) of reforms controlling for a series
  of counfounding factors.

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4. General Equilibrium Analysis

• Objective to go beyond partial equilibrium
  analysis modelling all economic accounts in the
  economy and thus aims to present a comprehensive
  picture of the impact of the policy change.
  (different levels of aggregation).
• Assumption results depend on the model
  specification and parameters.
• Tools social account matrices (SAM),
  input-output models (IO) and computable general
  equilibrium models (CGE).

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4.1. SAM and IO models

• Objective to simulate impacts by selecting some
  accounts as exogenous, and leaving the others
  endogenous
• Shortcoming results are very sensitive to the
  assumpiton of what accounts are exogenous or not.
  Prices do not adjust.

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4.2. CGE

• Description Completely specified models that can
  vary from 1 country, 2 activities, 3 goods to
  several activities and actors with hundreds of
  parameters.
• Application public finance and macroeconomic
  stabilization.
• Shortcoming data demanding and time consuming.

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Tools linking microeconomic distribution or
behavior to macroeconomic frameworks or models

• Objective to integrate macro models to
  microsimulation of the impact of the reform. Key
  parameters of the macro models feed into the
  estimation technique of the impact on poverty.
• Tools
• a) linking macro-framework to a reduced form
  simulation
• b) linking macro-framework to behavioral analysis
  estimated for representative households
• c) linking macro-framework to microsimulation.

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References

• Tools for Institutional, Political and Social
  analysis (TIPS) http//www.worldbank.org/psia
• Economic tools for impact analysis
• The impact of Economic Policies on Poverty and
  Income Distribution Evaluation Techniques and
  Tools (Bourguignon and Pereira da Silva, 2003)
• Analyzing the Distributional Impact of Reforms
  (Coudouel and Paternostro)