Taxation, fiscal space and resource mobilization

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Responding to the social protection needs of the population requires a sufficient level of resources. Most of these resources have to be raised at the national level, ensuring sustainability, equity and solidarity in financing, and good governance. National tax systems are one important source of financing, particularly with regard to a sufficiently broad and progressive revenue base, taking into account different types of taxes. Other possible options to expand fiscal space for social protection include the reprioritization of public expenditure, earmarking revenues from natural resources, as well as international cooperation and support in the case of countries with insufficient economic and fiscal capacities.

While different strategies can be sought to raise the necessary resources for social protection, such as the re-prioritization expenditures, increases in the tax base, improvements in the collection of revenues etc., the creation of the necessary fiscal space in the government budget to finance  social protection benefits ultimately depends on the political will do commit the necessary resources. For tax-financed provisions, the tax base has to be sufficiently progressive; otherwise the objectives of the social protection system are undermined by the tax burden placed on the poor and vulnerable population groups. Similarly, contributory schemes need to take the contributory capacity of persons covered into account. The financial sustainability of the social protection system also greatly depends on the government’s ability to enforce existing tax and contribution obligations. Financial sustainability also requires that provisions are made for the system to be able to respond to shocks or crises.

Photo credit: “Bamboo” by Phil Dokas (CCBY 2.0 via Flickr).

 

Expert Commentaries

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Legal Instruments

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Resources

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IMF Monitor

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