Thursday, May 08, 2008

Richard Arnott finds a conundrum for making housing policy in developing countries

The abstract for his paper for the Commission on Growth:

All countries have a formal economy and an informal economy. But, on
average, in developing countries the relative size of the informal sector is considerably larger than in developed countries. This paper argues that this has important implications for housing policy in developing countries. That most poor households derive their income from informal employment effectively precludes income-contingent transfers as a method of redistribution. Also, holding fixed real economic activity, the larger is the relative size of the informal sector, the lower is fiscal capacity, and the more distortionary is government provision of a given level of goods and services, which restricts the desirable scale and scope of government policy. For the same reasons, housing policies that have proven successful in developed countries may not be successful when employed
in developing countries.

Particularly problematic is the fact that the best static housing policy would be to provide water and sewage infrastructure for informal settlements. But the provision of such services reduces the incentives for the settlement to become formal. Until the settlements are formal, the fiscal capacity of governments will remain low, so their ability to provide infrastructure will be limited.


Anonymous said...

Paying for water/sewage might be acceptable to developing communities, if they could be reassured that payments would stop there. It is the tendency for formal extraction of resources to multiply ad infinitum that makes many people wary of entering the formal structure.

Even some people in developed countries resist the expansion of cities in their region. Septic systems tend to be far less expensive then ever increasing taxes to support an expanding supply of progressively less desirable services.

berto said...

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Anonymous said...