Safety Nets to Facilitate Reforms

The need for compensation will depend in part on the pattern of benefits of the program to be reformed—that is, who it reached and how important the program was to them. In the case of food subsidy reforms, the poor often receive a low share of the absolute benefits, but these low benefits are nonetheless an improvement in their welfare. Sometimes, however, the poor have benefited little from the subsidy to be reduced, for example, if electricity were subsidized but the poor were not connected to the grid. An indirect feature of the needs assessment (see chapter 9 for guidance on how to carry out a needs assessment) concerns the political economy of reform. Is there consensus on the need for reform or not Who opposes it and why Would a compensatory targeted cash transfer help make the reform more acceptable  

Such reforms are applicable in a diverse range of contexts in both high- and low-income countries, in times of relative stability or crisis, and so on. A possible common feature is a high degree of state intervention in the economy. 

Often countries that need to provide compensation for reforms do not have good poverty-based cash transfer programs in place. Indeed, the lack of such a program may have been 

Where a poverty-based cash transfer program is already in place, introducing compensatory measures may be simpler. Jamaica already had a progressively targeted food stamp program in operation in 1995, thus when the government eliminated kerosene subsidies, it was able to boost the value of the food stamp benefit as a compensatory measure for the poor and did not have to mount a separate program. 

The compensation policies for which this book is pertinent are mostly cash transfers or near cash transfers such as food stamps or heating vouchers. Other compensatory mechanisms, such as lifeline utility pricing for low-volume users or training programs for workers laid off from state enterprise reform, are common elements accompanying such reforms, but are outside the scope of this book. 

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