Education resilience and its potential impact on the revenue of the government

Should your parent’s level of education affect your opportunities? From an equity perspective, it seems obvious that this relationship should not exist since it doesn’t give equal opportunities for all. But what about efficiency and what could be the implications in the government’s ability to raise a certain revenue? This post focuses on education resilience, giving some data about the relationship between social status and school results of children. Then, it will be the opportunity to enhance our awareness about the potential implications on the government revenues and on efficiency that we could have by weakening this a priori “unbreakable” link.

First of all, what exactly do we mean by education resilience? It can be defined as un unexpected situation in which an underprivileged student manages to achieve good results at school. In other words, a “resilient” student beats the odds stacked against him to be ranked among the top quarter of students. An important OCDE program about education is the PISA 2015 that has assessed 15 year-old students knowledge in science, mathematics and reading.  Before getting into the data, the reader should be aware that PISA can not identify cause-effects relationship between policies and student outcomes. However, it can show us how education systems are different and help us to think about potential implications of resilience which is the purpose of the post. As regards the data, we will use the PISA results as students grades and the Index of Economic, Social and Cultural Status (ESCS) representing the social position of students. This ESCS index takes into account many variables: social position and education level of parents, number of books available at home, the spoken language at home, etc. Once all the students are ranked accordingly to their test results and as well as their ESCS index, we can draw conclusions about equity considerations. The most striking one states that socio-economically disadvantaged students and immigrant students across OCDE countries are respectively almost three times and two times more likely than advantaged students/non immigrants not to attain the baseline level of proficiency in science.

But what are the efficiency implications of not giving equal opportunities for everyone? Actually, it means we don’t use our most important assets of our economy, human capital, in the most productive way. Because socially disadvantaged potential talents can not be revealed due to the relationship discussed before, we could argue that they are wasted because of the fact that they are simply born at a “wrong” place. However, if a government gets to weaken this undeniable relationship, disfavoured students would be able to achieve better results and would access universities. Moreover, the literature agrees on the return of education in term of revenues. Indeed, a longer education generates lifelong higher revenues. So, it would increase the potential resources on which the government can raise a certain amount.

Eventually, the relationship between the parent’s social status and children education (and therefore their revenues) seems difficult to be stamped out. Nevertheless, this difficulty does not justify that we don’t worry about that issue since there are equity and efficiency considerations.

Maxime Smets.

References: 

https://www.oecd.org/pisa/pisaproducts/pisainfocus/48165173.pdf

https://www.oecd.org/pisa/pisa-2015-results-in-focus.pdf

HINDRIKS, J., et GODIN, M., (2016), « Où est l’école de la résilience ? », in Itinera, pp. 1-30.

STIGLITZ, J., (2012), The price of inequality, New York, W.W Norton, p.149

http://www.unesco.org/education/gmr_download/chapter2_fr.pdf

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GST in India – A growth driver for the economy?

GST or Goods and Services tax is a unified and one indirect tax for an entire economy creating a common market. While several countries adopted this in the past, India recently implemented this system of taxation on July 1, 2017 aimed at removing cascading effect of taxes and ensuring certainty and ease of doing business. It replaced many indirect tax laws that existed earlier in India and encouraged better compliance. India adopted a dual GST model, wherein transactions made within a single state are levied with Central GST (CGST) by the Central Government and State GST (SGST) by the State governments. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government.

According to a study by Business Today and also backed by several economists, the GST system if designed well could boost the GDP by 2-2.5%. This shall be supported by an increase in exports by a good margin of about 10-14%. Costs like inventory management and uniform taxation even in cheaper areas of the economy would improve the overall competitiveness of the Indian goods. There will be significant improvement in the logistics industry as warehouses shall be consolidated which earlier were spread across the economy to avoid taxes levied on movement across states.

Certain industries in India like construction and textile are largely unregulated and unorganized. GST has provisions for online compliances and payments, and availing of input credit only when the supplier has accepted the amount, thereby bringing accountability and regulation to these industries. GST aims to increase the taxpayer base by bringing in SMEs as well which contribute significantly to the overall GDP of the country.

However, all of this did not come easy for a democracy with political systems as complex and diverse as India. The idea for a common tax reform started way back in 1999 post which several committees were set up to decide upon the infrastructure, rates, logistics, etc. With frequent changes in the government, the system took time to assume its final shape. There also persisted a public debate over the revenue loss of the state governments and infringement on their fiscal autonomy. The manufacturing states that earlier charged taxes would now lose revenues as GST is a destination based structure. An attempt was made that such states may be compensated for the loss through an additional 1% tax, which again went through several criticisms for failing the very purpose of GST.

The transition to GST from the multiple tax structure has been considerably smooth despite the apprehensions of industries and taxpayers. The revenue collections from customs duty and IGST from imports, has almost doubled to INR 30 billions in the first month of implementation. State borders have begun to dismantle helping the logistics companies to transfer more and more products per day. Many industries and consumers have gained from a lower tax rate than earlier for instance, FMCG goods. It is, however, essential to see these benefits reflect in the long run. There is a strong positive outlook towards it with economists being certain of tremendous growth potential.

By: Aiman Ghazli (31018)

Endless Debate on the Swiss Pension System

Over the past 15 years, reforming the pension system has been one of the hottest topics in Switzerland. As in other European countries, the Swiss population is growing older while baby-boomers gradually retire from the labour market. People of Switzerland have been proposed – and rejected – several changes in the retirement system throughout the beginning of the century. Yet the system is more and more unprofitable, raising the issue to new heights. After fierce debates at the parliament, a fresh reform was finally – and by a narrow majority – presented to the Swiss population.

The reform defines three age categories which are differently impacted by the reform. People that have already retired benefit from a status quo in the amount they receive each month (CHF 1175). The rest of the population is guaranteed an increase in monthly income of CHF 70 starting from 2019. In exchange, citizens younger than 45 see their conversion rate on capital decrease from 6.8% to 6%. Another point concerns women, whose age retirement is increased from 64 to 65 years to match men’s one. The reform makes it also possible for anyone to choose its age of retirement between 62 and 70 in exchange for a decrease or increase in monthly income. As a conclusion, it seems that the youth and the women are more penalised by the reform.

Of course, reducing deficit and paying higher retirement income requires financial compensation. First, the reform plans to increase the tax on labour, which is equally paid by the worker and the employer, from 8.4% to 8.7%. The actual benefit of this measure is debatable, since it could negatively affect both demand and supply of labour in the long run. The reform also suggests to use VAT as financial tool for the pension system. First, 0.3% of the 8% Swiss VAT would be transferred from the disability insurance to the retirement system. When one knows that disability insurance is facing even more financial distress, this measure is somewhat puzzling. Furthermore, VAT would then be increased to 8.3% to strengthen the pension system on the long run.

The Swiss population was finally asked to vote on September 24, leading to a public debate as intense as the parliamentary one. Measures like the flexibility in the age of retirement were perceived as positive by the whole political spectrum. However, each side had to make concessions during the parliamentary phase. Thus the final impression on the reform was the one of a shaky building that did not please any party overall. Yet one strong argument for the ‘yes’ was the immediate necessity to stabilise the system while working on a better revision. Not convincing enough, it seems, since the reform was (very) slightly rejected by the voters.

What is the moral of the story? People of Switzerland are not fond of lame trade-offs. The system thus needs to be fully rethough to fit a complex and fast-changing world. The sooner, the better.

What is the impact of Olympic Games on Poverty?

At a first glance, the benefits of the Olympic Games and other mega sporting events seem to outweigh the drawbacks. Economic growth, infrastructure legacies, and image promotion are among the top benefits of hosting the Games.

For instance, as seen in this article, from October 1986 to July 1992, the general rate of unemployment fell from 18.4% to 9.6% in the host city of the 1992 Olympic Games, Barcelona.

In South Africa, Poverty reduction strategies associated with the 2010 FIFA World Cup included a commitment to construct facilities in disadvantaged areas, job creation, provision of affordable housing, small business support, provision of an integrated transport system and community consultation.

An investment of $2 billion was made in Olympic-related projects between the 1990 Olympic announcement and spring 1996 to Atlanta, the host city of the 1996 Olympic Games, a region where 30% of the population lived below the poverty line according to this study. As a result, over 580 000 new jobs were created in the region between 1991 and 1997.

Nevertheless, the existing literature does not offer much evidence that hosting mega events has a direct effect on poverty reduction; on the contrary, the use of mega sporting events to achieve social goals for socially excluded groups is heavily contested, as this article demonstrates.

The 1996 Atlanta Games serve as an illuminating case of the negative social impacts of a mega-sporting event. Between 1990 and 1995, 9500 units of affordable housing were lost, and $350 million in public funds was diverted from low-income housing, social services, and other support services for homeless and poor people to Olympic preparation during the same period.

In Sydney, in 1998, when the Olympic-related infrastructure was at its peak, house prices rose 7% above inflation, compared to the usual 2%, according to studies. Moreover, in Sydney’s Olympic corridor, an area which was primarily occupied by low-income tenants and where unemployment was as high as 38%, rents increased up to 23% in the period 1997-1998, as shown in this PDF.

The book “Inside the Olympic Industry: Power, Politics, and Activism”, available at this link, gives further details regarding the Australian situation.

Brazil hosted the Summer Olympic Games in 2016 and, with the Games over, Brazilians were asking “what now?“. “The Olympics were fun, but it was a sideshow” said Flavio Mattos, a 37-year-old fitness instructor from Rio who was interviewed by Fortune. “We now have real problems to fix“.

There is plenty of evidence for critics to say that the mega-event caused more harm than good: massive spending on stadiums at a time when the government could barely afford wages for doctors and teachers, a huge security presence that protected rich foreigners at the expense of poor residents and massive inequality between the £700 a day payments to International Olympic Committee executives and the £10 a day earnings of cleaners in the Olympic village, as this article shows.

Students say the Games could have led to investment in poor communities, but they instead exhausted Brazil’s development reserves. Lucas Rodrigues Alves, from Escola Superior de Marketing e Propaganda in Rio de Janeiro, said in an interview: “I see the millions and billions spent on overpriced Olympics construction, which should be spent on education, health and projects for people of the favelas to have opportunities to grow and participate in the development of the whole city”.

Michel Silva, a journalist from Rocinha, Brazil’s largest favela, has the same opinion: “A huge amount of public money was spent on the 2014 World Cup in Brazil, and although sport can be a tool for social inclusion, what we really need is investment in education, health, security and many other things”, said in an interview with The Guardian.

In addition to the missed investments for poor people, the latter also experienced intimidation, violence and lighting evictions from local police agents.
“The modernist city doesn’t have space for the poor”, affirmed Clarisse Cunha Linke, Brazil Country Director of the Institute for Transportation and Development Policy (ITDP), in an interview.
As people from the favelas said in an interview conducted by Al Jazeera, “One of the times they tried to remove us, long before the Olympics, we were given the justification that we are a visual aggression. We are ugly. Poverty is an ‘aesthetic damage’ to the area“.

When asked whether the Olympic games were having an impact on poor communities, Simon Worrall, National Geographic said: “The change I was seeing was superficial. The face of the city was changing but not the faces of the people who gained from these processes. Time and time again, when I looked at big infrastructure projects, what I saw was that the people who had always benefitted in Brazil – the wealthy parts of town, the big development companies – were the ones who would benefit from what was being put in place. The Olympic plans were laid out in such a way that the people who were already wealthy became wealthier and the people who were already on the margins, like the favelas, were pushed further to the margins“. More information can be found at this link.

Moreover, as we can see from an article of The Economist about a Book written by Andrew Zimbalist, the revenue from the summer Olympics was not equally distributed between the International Olympic Committee and the Local Organizing Committee.

In conclusion, it appears that Olympic games are negatively correlated with Poverty Reduction and positively correlated with Inequality within the city which hosts the Games.
It seems right to wonder, then, how a well-grounded programme of urban development (initiated well before the event) could take root and be sustained well into the future, with multiple spin-offs for all city dwellers, in particular the poor and marginalised.

People rising out of poverty need more than short-term economic gains to truly leave poverty behind.
Cities can adopt an equitable development model for urban planning, which ensures that all city residents have a chance to benefit from major sporting events.
For example, the 2012 London Olympic Games included a proposal to turn the Olympic Village into 6,000 units of affordable housing.
According to this article by Stanford University, if we change the approach to development, large sporting events like the Olympics can reduce, rather than drive, inequality.

Matteo Grosso, 3610

Master in Management

Poverty in the Czech Republic Compared to the European Union

Due to I am only Czech student in our course Poverty: Concepts and Challenges I would like to focus this blog post on level of poverty in the Czech Republic. In the second part I would like to compare results of research made in the Czech Republic with results of same research on level of poverty in the European Union. I will use the latest data from the Czech Statistical Office and data published on the European Commission website.

Research on poverty in the Czech Republic is made every year. Data I will show in this post are from the end of 2015. Data from 2016 will be published in the end of this month. Results of this yearly research show us percentage of people at risk of poverty due to insufficient income and at risk of social exclusion.

In 2015 there were 14% of total population in the Czech Republic at risk of poverty or social exclusion. If we divide society according to gender, women (15.6%) are more in danger of risk of poverty than men (12.3%). Children (18.5%) are more endangered than population in productive age or population older than 65 years (10.9%). Population in productive age can be divided according to their employment or unemployment. It is not surprise that 57% of unemployed people are at risk of poverty or social exclusion and “only” 6.3% of employed people are in the same situation. It is important to say that unemployment in the Czech Republic is constantly on very low level. In March 2017 it was slightly under the 5% of the Czech population. Important indicator of risk of poverty is household structure. Families with more children (15%) are more at risk of poverty that household without children (13%). But difference between households with children and without children is not so striking.

Let´s compare the Czech Republic with the whole European Union. The Czech Republic is on the long-term basis one of the countries with the lowest percentage of population under the level of poverty. There is 23.7% of total European Union population at risk of poverty or social exclusion. Percentages according to gender, age or employment are growing depending on percentage of total population at risk of poverty. 24.4% of women and 23% of men, 26.9% of children and 17.4% of people older than 65 years and 66.6% of unemployed and 12.5% of employed people are at risk of poverty.

In the course of approaching to conclusion I would like to briefly comment on material deprivation. There live close to 9% of population in severe material deprivation in the European Union. In 2015 it was 5.6% of population in the Czech Republic. Those people cannot afford to own washing machine, telephone, car or other things and cannot face unexpected expenses.

In this short article I tried to show the situation of poverty in the Czech Republic and compare it to the European Union. The Czech Republic has one of the lowest percentages of population under the level or at risk of poverty in the European Union as I mentioned and we can also see on the attached picture. It is positive these percentages in the Czech Republic are lower every year even though level of poverty is growing every year (means you need earn more to be over level of poverty). On the other hand we can´t say the European Union is not fighting against poverty. There exists the 2020 target which is being achieved by wide range of policies covered by The European Platform against Poverty and Social Exclusion.

Anna

Source of attached picture: http://ec.europa.eu/eurostat/news/themes-in-the-spotlight/poverty-day-2016

What were the impacts of Bolsa Família?

Context

In order to tackle major issues in the access to education, in the mid-nineties, the Federal Government of President Henrique Cardoso launches Bolsa Escola. Later on, President Lula expanded the domains of the program and gave it a wider range of impact.

Bolsa Família Program (BFP) was, thus, created as a major public policy to reduce the levels of extreme poverty, inequality and foster the access to education and health care.

The Program

The program is a Conditional Cash Transfer (CCT) which means that beneficiaries only receive the public cash transfer upon fulfillment of specific conditions.

The CCT in Mexico Oportunidades was the first CCT and, like BFP, aims to alleviate extreme-poverty in a short-term dimension. Moreover, according to Skoufias, there’s a wider impact in human capital because CCTs block intergenerational vicious cycles of poverty.

The beneficiaries need to fulfill conditionatilies that, according to Lindert, make all Government institutions to coordinate local solutions and cross-cut through different levels of Government.

Impacts of the Program

According to the World Bank from 2003 to 2009, poverty rates dropped from 25% to 15%, representing approximately 30 million people that jumped out from poverty. In 2014, those levels decreased to 7.4%. The Gini coefficient declined from 0.60 to 0.53. The Financial Times stated that this signified that 40 million people moved up from poverty to the middle-class.

Furthermore, Bither-Terry argues that measuring impact on poverty alleviation based on income may not include further information to reflect on the intensity of the program. Moreover, the analysis must take into account the main concept of poverty and until which extent each family meets basic human needs.

These impacts on income and poverty alleviation were aligned with economic returns (2013), whereas the program represented low impact in the national budget with less than 0.5 of the GDP (2007). From each real spent in Bolsa Família, there is a generation of R$1.60 to the economy as a result of increasing consumption by the beneficiaries in goods and services.

When it comes to particular impacts in education, the outcome are correlated with the conditionalities imposed to the beneficiaries in the first place. It’s also possible to state that the outcomes are not equivalent across all regions. In rural areas, the program appears to boost school participation levels by 8 percent in children aged 6–17 years and grade progression by 10 percent between girls.

 On another hand, in urban areas, this result just appears in girls aged 15–17 years. Furthermore, there’s a 21% increase in school attendance in girls aged above 15 year old beneficiating from BFP (2013).

According the School Census of 2012 (2014), the North and Northeast states express deep impact of BFP, as beneficiary students lower the rate of dropout (8.7% and 7.7%, respectively) when compared with those who don’t beneficiate from it (17.1% and 17.5%, respectively). We can see similar analysis in the high school pass rate in the public system between students with BFP with 79.8% compared with other students with 71.1%, in the North region. The same result happens in the Northeast, comparing an 82.6% from students beneficiating from BFP against 72% to other students.

As Craveiro & De Aquin stated that there’s contradictory dynamic, in rural areas when it comes to Child labor. In fact, boys between 15-17 years old beneficiating from BFP have more 10% chance of working in agriculture at the same time they are in school, that those who don’t beneficiate.

Conditionaties may not result in desirable outcomes, since families still rely on revenues from child labor, particularly in rural areas. A part from that, relying on these two sources of income lead some authors stated that children are still exposed to situations of violence.

Women were a society sector in which BFP had particular impacts, when it comes to contraception, particularly in urban areas. Brauw and Gilligan stated conditionalities beyond potential paternalism on how money should and should not be spent by families, it may also create a debate on societal roles of men and women in traditional concepts of family.

Some critics affirmed that BFP was similar to a helicopter launching money to the poor and its utility was debatable. Although more criticism, regarding paternalistic attitude by the Government and political convenience (2016) of BFP, the program still needs to evolve towards more developed concepts of conditionalities and productive incentives to find jobs and to include labor income incentives, through earnings disregards.

José Afonso

Taking a look at Poverty evolution in Portugal

Portugal, one of the tourists’ favorite destination, known, among other reasons, for its good weather, nice food and caring people, is a country with 10.5 million people, 11% of unemployment (more than 55% of which corresponding to long-term unemployment) and whose household and Government debt surpass 134% and 149%, respectively. In fact, despite being one of the countries where people work more, the labor compensation per hour worked is among the lowest in Europe, being this a crucial factor when analyzing the overall country’s condition.

If one looks at the most recent data, it is possible to confirm that, among the European Union, Portugal appears as a leading country regarding both the poverty rate (corresponding to a 0.18 ratio) and the poverty gap (0.355 ratio), solemnly behind Estonia, Spain, Greece and Latvia. In order to tackle this and other issues on the society spectrum, the Portuguese Government allocates more than 24% of the national GDP to social purposes.

Poverty is considered a precarious situation of scarcity, which most of the times arises due to economic and financial circumstances. Has this concept been impacting the Portuguese society the same way in the past decades?

Taking a look at the national history data, one can see that, during the conservative dictatorship period (Estado Novo), which lasted from 1933 to 1974, although poverty was widespread, affecting almost 40% of the Portuguese population, it was not a great reason for policy concern. However, with the democratic Revolution of 1974, a modern welfare state was introduced, creating a set of important social rights. In 1980, more than 15 million of European households and 49 million individuals lived under the poverty line – the majority were elderly people and children. At the time, all European Union countries presented some degree of poverty and social exclusion, according to the European Commission criterion used (household that had a monthly income correspondent to 50% or less than the average monthly national household income, weighted for the household size). The Southern countries were the worst in terms of poverty rates and, from 1980 to 1985, some showed no poverty reduction – one of these was Portugal, that had almost one third of the national citizens and households living in such circumstances. After Portugal’s entry to the European Union (1986), the country assisted to a boost in anti-poverty measures, aimed at specific groups. In 1991, a shift in the poverty risk occurred, aimed at large families, isolated people and poorly qualified individuals. Despite the efforts, in 1993, Portugal was still remaining above the EU poverty rate average.

From 1980 to 2000, a great increase in the level of social spending was verified and, during the nineties, with the introduction of more significant measures and policies on integration (mainly aimed at employment, income redistribution, professional training), the country assisted to a decrease in poverty. This topic was put at the center of the national agenda, having been created the Rendimento Mínimo Garantido, a minimum income scheme, in order to ensure an acceptable living standard. Still, Portugal was considered, in 2002, the country with the highest poverty rate among EU countries (with 23% of poor people), at a time when the Eastern countries were not yet part of the EU.

Nowadays, traditional forms of poverty, associated to isolation and aging, have been stabilizing and decreasing in Portugal, due, among other reasons, to the decline of retired people without any career contributions to Social Security – who used to receive little pensions. A relevant indicator of the social changes that occurred in the last few decades is the decrease in elderly poverty (with more than 65 years old), which dropped by 31%, between 2003 and 2010. However, a new poverty phenomenon has been challenging the society, associated to labor market changes, such as temporary work, and demographic and social changes, from which the longer life expectancy is an example.

In my opinion, it is urgent to fight poverty in order to attain a fairer and better society and, for that purpose, several policies and measures should continue to be carried on, creating solutions that fit the needs. In developed countries, as the case of Portugal, those issues can be addressed via, for instance, provision of benefits in kind, further increase of the national minimum wage, better implementation of progressive taxes and investment in employment conditions. Particular attention should be given to the increase of the national minimum wage, as it must be sustainably supported by healthy organizations and companies, able to pay their employees that higher amount.

Beatriz Jesus, Master in Management student at Nova SBE

Figure 1 – pobreza portugal – (2017). Google.pt. Retrieved 12 April 2017

Figure 2 – Poverty, social exclusion and health in Portugal. (2017). Sciencedirect.com. Retrieved 13 April 2017