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The Short Run: Cash Grants to All Citizens

Universal, unconditional cash grants have been debated at some length as the most appropriate way of sharing national wealth in resource-rich developing countries, and governments as diverse as those of Alaska, Bolivia and Iran have had encouraging experiences with such schemes (Hertog, 2014b; Sandbu, 2006; Segal, 2011). There is also an extensive literature about the potential advantages of unconditional cash grants over conventional welfare mechanisms in advanced, capitalist countries (for an overview see Van Parijs, 2000).[1]

There are numerous general arguments for cash grants, and these arguments apply with at least equal force to the Arab world’s poorer countries: compared to existing subsidy systems that privilege insiders and rich households they are more equitable (Sandbu, 2006), distort consumption decisions less, and are more transparent (Moss, 2010). Compared to means-tested support systems, they are easier to administer, generate smaller overheads, and are less prone to stigmatisation and errors of exclusion (Segal, 2011). In the Arab world, the administrative capacity for means testing is particularly limited, as tax systems generating household income data are weak.

Cash grants could keep at least part of the state’s resource revenues out of the hands of self-interested politicians, thereby reducing corruption (Baena, Sevi and Warrack, 2012; Birdsall and Subramanian, 2004). They could impart a sense of ownership to citizens, increasing their ‘buy in’ into the political system (Palley, 2003), and create a more level playing field between state and citizens (Gelb and Grasmann, 2010; Gillies, 2010).

By providing a secure revenue stream to citizens, cash grants could at least on the margin incentivise private investment, entrepreneurship and the development of local markets, including financial markets (Gelb and Grasmann, 2010; Palley, 2003; Sandbu, 2006). Authors of the cash grants literature have adduced considerable evidence that private agents are adept at investing cash windfalls well (Birdsall and Subramanian, 2004; Gelb and Majerowicz, 2012; Sandbu, 2006) and at smoothing their consumption over time (Hsieh, 2003).

While taxation capacity in the Arab world is low, basic administrative capacity is fairly high in most countries. A cash grant system could be set up quickly, as it only requires basic information about citizenship and age. Individuals without bank accounts could be reached through the use of special cash cards. As we have seen, trust in the state is particularly low in the region, making simple and hard-to-manipulate systems like a universal cash grant particularly attractive politically. The unconditional nature of grants would maximise political buy-in. Options for means testing along the lines of Latin American style conditional cash grants could be considered later on.

  • [1] For a global policy initiative on basic incomes, see the Basic Income Earth Network website:http://www.basicincome.org/about-bien/.
 
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