POVERTY REDUCTION STRATEGY TN

Government budgets support poverty alleviation programmes through a variety of income
transfer schemes, including employment guarantee and self-selective food-for-work type
of programmes. Such direct support, however, is only a fraction of the much larger
indirect subsidisation programme. In these subsidy provisions, although considerably
larger resources are involved, most benefits could be appropriated by the non-poor if the
subsidy is not designed and administered carefully.
Flow Chart 3.1 provides an outline of the channels through which fiscal policies
can affect the incidence of poverty in a country. First, the size of the budget itself
indicates the capacity of the government to intervene. Secondly, the structure of its
expenditure programmes determines the relative strengths of direct and indirect
interventions for poverty alleviation. Expenditures on services that are in the nature of
public goods, like law and administration, can serve as pro-poor instruments, provided
access costs are taken care off. Thirdly, expenditure on education and health constitute a
long-term strategy for combating poverty through human development. Fourthly,
expenditure on infrastructure increases growth prospects and thereby reduces poverty.
These are all avenues of indirect intervention.
Flow C hart 3.1: Fiscal Policies and Poverty Reduction:
Direction and Factors Strengthening Im pact
Higher
budgetary
resources
P o licies
reducing
Subsidised
incom e social and
in eq u alities
eco n o m ic
services
Higher
growth
H ig h er H ealth E d u catio n
Investm ent
in in frastructure
Low incom e
and asset
inequality
B etter targeted
sub sid ies
D irect
in terv en tio n
Labour intensive
growth
M in im isin g
leakages
H igher
Em ployment
Lower
poverty
Social
securites
transfers
Low access
costs
Poverty
allev iatio n
programmes
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