Transcript Poverty and Informality in South East Europe

Poverty and
Informality in
South East Europe
Alexandre Marc
Zeynep Kudatgobilik
Choosing South East
Europe
Poverty is higher in SEE than in
other EU accession countries
 Three types of transitions
 Enormous diversity of situation
 SEE, is a special case but lessons
valid for all accession countries
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Percentage of Population Living in
Absolute Poverty in Various ECA
Countries
H e a d c o u n t In d e x ( $ 2 .2 5 p e r p e r s o n p e r d a y in 1 9 9 6 P P P )
60
50
40
30
20
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Source: World Bank. 2000. Making Transition Work for Everyone.
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Looking at Informality in
Coping VS Informal Economy
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Looking from the perspective of the poor
for those who have no other choice or
very little choice
Informality is not only in the economic
sphere of revenue generation and
employment but is prevalent in access to
services, justice, security and support
For policy recommendations: WDR 2000:
Opportunity, Security and Empowerment.
Empirical research from social
assessments and poverty assessments
Why Is Informality So
Prevalent Among the Poor?
High Level of Poverty
 Lack of fiscal Capacity of the State
and Local Governments
 Lack of institutional capacity
 Lack of formal organization to
support trade and economic
activity
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Informality in Access to
Services
Health, Education, Social Protection
 Total health expenses estimated between 25%
and 50% out of pocket
 Up to 80% of people have mentioned that
they are paying on the side for health care
 Weak health insurance mechanisms,
 Strong tradition of in-kind support, gift to
medical personal (also in poorer EU countries)
 Evidence that informal payment is a major
barrier to access, especially for preventive
care
Share of Patients Making Informal Payments in Selected ECA Countries
Bulgaria (1997)
Albania (1996)
Slovak Republic (1999)
Moldova (1999)
Russian Federation (1997)
Poland (1998)
0
20
40
60
%
Source: World Bank. 2000. Making Transition Work for Everyone.
80
100
Informality in Access to
employment
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Informal employment is prevalent : short period
of time, low wages.risky and irregular
High level of payroll tax, rigid labor laws and
problems with inspections and controls pushes
many to look for informal employment
Constraints facing formal micro-businesses
• Underdeveloped market environment
• Poor legal framework
• No or limited access to finance
• Petty corruption
Informality in obtaining favors
, justice and security
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Not well documented but prevalent (does
not appear in household expenditure
surveys)
Payment of judges, security forces or
clerks to influence cases
Security, one of the main preoccupation
Lack of trust
The most extreme cases of informality in
justice is in Albania with the re-apparition
of FIS and Canun
Implication for Poverty
Reduction Policy
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‘Informality’ has both positive and negative aspects,
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Allows the poor to access services and revenues that
the market and the government are not offering.
increase inequities and has it’s own mechanism of
exclusion, mostly because it relies on social capital
and social networks
It can also be connected to activities with large
negative externalities like trafficking, exploitation,
child labor, crime etc…
It can also deprive the Government from some of the
necessary revenues that are needed to provide
services to the population, however taxing the poor
does not usually bring much to the State
Implication for Poverty
Reduction Policy
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Separate informality that help the poor to cope
especially in the transition period from
informality with very large negative externalities
Easier say than done: connections between
informality as a coping mechanism and
informality as crime
Without a healthy macro-economy and growth,
can be harmful to crack down on informality
Policy Recommendations
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Encouraging community involvement in provision
of services:
 Finding ways to allow for flexible
“officialization” of informal coping
mechanisms.
 Encourage local redistribution mechanisms
(community foundations, NGO involvement in
some activities under adequate supervision,
organize and encourage official voluntarism).
 Empower municipality to exempt the poor of
some services
Policy Recommendations
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Reform regulation to allow community
based organization and local government
to implement these policies:
 Facilitate Registration of associations
and local level community based NGOs
 Facilitate use of public funds as
matching grants with communities
 Facilitate creation of community
foundations
Policy Recommendations
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Facilitate Employment Creation
 Reduce rigidity in labor market in particular
do not finance social insurance through
payroll tax
 Create a special status for micro-enterprises
different than the status of SME
 Adapt legislation to allow more flexibility in
creating micro-credit schemes
 Be very flexible on authorizing very small
trade, especially in poor and depressed
regions
 Create small business coalition public
oversight to reduce corruption by public
officials and administration.
Policy Recommendations
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Improve Public Private Partnership to Fight Small
Corruption
 Introduce systematic mechanisms for
feedback from citizens, with report cards and
consultation
 Link budget transfer to municipality to the
quality of services and good governance
 Strengthen monitoring and evaluation for
sector programs.
 Create recourse systems such as ombudsman