New UN Study Reveals Limited Impact of Tax and Social Protection Policies in the Early Stages of the COVID-19 Pandemic in Africa

In the first study of its kind in Africa, researchers found that tax and benefit policies provided limited income protection to poorest households and failed to offset the increase in poverty.

•••

Researchers from the United Nations University World Institute for Development Economics Research (UNU-WIDER) and its partners analysed different policies in five Sub-Saharan African countries — Ghana, Mozambique, Tanzania, Uganda, and Zambia. The study reveals five key findings:

Existing tax-benefit systems were ineffective in preventing an increase in poverty and inequality in the face of the pandemic.
Discretionary social protection measures responding to COVID-19 were largely successful in targeting the poorest households but benefit amounts were mostly too small to make a significant difference.
School closures during lockdowns in Zambia and Ghana however meant that large school feeding programmes could not be delivered, leaving parents to feed their children using their own means. This created an additional burden to poor households that, in the case of Ghana, additional tax-benefit policies did not manage to offset.
The Emergency Social Cash Transfer programme in Zambia stands out as one of the most effective measures in reaching the poorest by building on an existing social protection programme.
A good agricultural season, particularly in Mozambique, likely provided some protection for the poorest households. While good news for 2020, this also illustrates how large parts of the population depend on stable climate conditions.

2021 is expected to be worse

The results of the study The Mitigating Role of Tax and Benefit Rescue Packages for Poverty and Inequality in Africa Amid the COVID-19 Pandemic provide valuable insight for governments in the developing world to navigate through the COVID-19 crisis. The findings demonstrate the limits of African tax-benefit systems, as they existed at the onset of the crisis, and the weak contribution of additional measures taken in response to the crisis.

While the negative effects on poverty and inequality were relatively modest across the five African countries studied in 2020, the key contribution of the study is in showing that current tax-benefit systems are not well-equipped to protect households from economic shocks. This finding paints a grim picture for 2021, as the COVID-19 crisis lingers on, but also for future crises facing African economies.

"Higher COVID-19 caseloads, slow vaccination roll-out, and the challenge to finance social protection programmes in times of dwindling government resources, are a major cause for concern. These countries face tremendous challenges in supporting the poor through difficult times", explains UNU-WIDER Research Fellow Pia Rattenhuber.

First-of-its-kind study on Africa

The study by UNU-WIDER, University of Essex, Southern African Social Policy Research Insights, and in-country partners used tax-benefit microsimulation modelling to assess how government policies in the areas of taxation and social protection responded to the COVID-19 pandemic in 2020. The SOUTHMOD models, tailored to each country, were used to assess the immediate distributional impact of the COVID-19 pandemic and the role of government policy interventions in mitigating the socioeconomic effects of the crisis. The study evaluated these effects in each country, adopting a cross-country comparative perspective.

"A great strength of these models is that they allow for distinguishing between the impact of the crisis and the contribution of different rescue packages on economic outcomes", explains UNU-WIDER Research Associate Jesse Lastunen. He continues, "additional policy measures enacted by governments in response to the pandemic were modelled in close collaboration with national teams in each country. In the absence of detailed survey data on income changes during the pandemic, we used different statistical techniques to assess how the economic shock from COVID-19 across industries ended up affecting individual households".

"Getting up-to-date data with detailed information on how households fared throughout the crisis would be fundamental in improving the understanding and managing the effects of the COVID-19 pandemic and future crises", reminds Pia Rattenhuber.