Time for a New Course: An Essay on Social Protection and Growth in Latin America

Jun 16, 2021

We develop a framework to analyze the effects of social protection policies on two dimensions: their efficacy to protect households against risks, reduce poverty and mitigate inequality; and their impact on productivity and long-term growth. Our framework pays close attention to the legal and institutional context in which these policies are deployed, and to their interaction with other policies that also impact the social and economic outcomes that we focus on particularly those related to taxation and the performance of markets. We argue that social protection policies provide incomplete and erratic protection against risks, do not redistribute enough and hurt productivity—in sum, that they are inconducive to socially inclusive growth. We propose a new social protection architecture based on the principle of universality with respect to the relevant population and discuss its implications for health; retirement pensions; protections against disability, death and the loss of employment; poverty; inequality; and for firm and worker behavior among various margins that impact productivity. We discuss the tax implications of this architecture. We argue that, jointly considered, our proposals offer a route to fiscally sustainable and socially inclusive growth.

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