Comparative Perspectives on the Relationship of Public Finance and Poverty

Article excerpt

ABSTRACT

The mini-symposium in this issue of Public Finance and Management provides an outlet for emerging research on poverty and public finance at a particularly relevant point in time. In the aftermath of the 2008-10 recession rising poverty rates and prolonged durations of poverty will have significant financial impact on national, state and local financial systems. The demand for publically funded social services will be increasing, while the ability of governments to raise revenues will be at risk. Governments around the globe will be forced to reconsider their poverty alleviation programs and their financial systems. The two papers in this symposium offer insight on the relationship between poverty and public finance and suggest public finance strategies for addressing poverty and improving living standards.

1. INTRODUCTION

Why is studying poverty important and why is the persistence of poverty in some nations and geographic areas of concern? For nations, having significant numbers of persons living in poverty represents a loss of human potential and economic productivity. For individuals and households, living in poverty means being cut off from the larger society and economic opportunity. To be poor in the global economy today, even more than in the past, is to be an economic outcast.

Having large numbers living in poverty is not inevitable. There is evidence that governments that give priority to reducing poverty can reduce poverty. Even after considering different definitions of poverty, poverty rates have historically been lower in European countries than in the United States mainly because of government programs that help the poor and less fortunate. In Britain, the Labor government that came into office in 1997 made reducing poverty a priority and its program of income subsidies and other aid achieved a great deal. Child poverty in Britain was cut in half by the measure that corresponds most closely to the U.S. definition. In the middle-to-late 1960s in the United States, President Lyndon Baines Johnson declared a "War on Poverty" and a significant reduction in U.S. poverty resulted. There was also poverty reduction in the U.S. in the 1990s during a period of a strong economy. Yet, the 1990s poverty reduction was not as significant as in the 1960s and included over one-quarter of the 50 U.S. states experiencing an increase in poverty rates. The war on poverty is far from over in the United States or globally.

The deep worldwide 2008-2010 recession raised poverty levels significantly in the U.S. and across the globe. Poverty was highlighted as one of the top concerns when finance ministers from 185 member countries of the World Bank and International Monetary Fund met in April 2009 (Wrougton, 2009). As economies decline and jobs are lost the most vulnerable populations, including those living in or near poverty, suffer the most economic deprivation. The poor are also often the last to recover when economic conditions improve. In the recent recession and after, rising poverty rates and prolonged durations of poverty will impose significant social and financial costs on individuals and households and also on national, state and local financial systems. The demand for public support and publically funded social services will be increasing, while the ability of governments to raise revenues will continue to be challenged. Governments around the globe will be forced to reconsider their poverty alleviation programs and their financial systems.

Given the depth and expected duration of the 2008-2010 recession, rising and prolonged bouts of poverty will be one of the key issues in public finance for the next several years. Issues of interest will include what are the main stress and leverage points in public finance's relationship with poverty. This will not only be a developed, or developing, nation question and concern, but a global issue.

This mini-symposium is meant to provide an outlet for emerging research on poverty and public finance. …