Thursday, April 30, 2009

How is low-income fiscal stimulus delivered?

I’m just reading a brief Merrill March update on Thailand. In it is the following section:

“Farm income in March fell 7% due to falling crop prices.
Therefore, consumption remains at risk with an expected rise in unemployment.
However the Bt2,000 allowance for low-income earners, distribution of which
began from the end of March, is expected to cushion consumption in 2Q. The
total amount is Bt19bn. So far, Bt11bn or (0.5% of quarterly GDP) has been
converted into cash”

And that got me wondering: When governments provide fiscal stimulus in economic crises or just simple fiscal countercyclical measures and when they provide this to the poorest strata of society (as they should) how do they do this? I’m not sure how this looks in Thailand but I’m sure in very rural economies a significant number of workers (especially among the very poor) don’t have checking accounts. Or if we’re talking about slums then people won’t have mailing addresses where checks can be sent either. And I doubt they just wire the money. So then how is fiscal stimulus delivered to those people. Does someone drive around with an armored truck into a favela and hands out cash? That person would never make it out! My guess is fiscal stimulus is not delivered to the very poor, just to the poor that the state can “see” (in a Jim Scott Seeing Like A State kinda way) through its administrative matrix. And then how do you solve that problem? There obviously is a role for microfinance – providing people with access to financial institutions, not just credit but checking and savings accounts. But still… people without IDs, without proof of address (which can be a large part of a poor country’s population)… they’ll just be excluded.

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