6 - Pro-Poor Subsidies and the Problem of Leakage

Summary

The challenge of providing the poor with lower prices for goods and services without having the subsidies captured by wealthier people can illustrate the psychology of prosperous people desisting from taking advantage of subsidies intended for the poor. Indiaand Colombia, the two countries featured in this chapter, demonstrate the compatibility of relatively prosperous people’s self-esteemand their resisting the capture of subsidy benefits. Both cases illustrate how official recognition of the willingness to pass up subsidized goods or services can contribute to this self-esteem, reinforced by the opportunity to engage in noblesse oblige. The Colombian case of neighborhood designations dictating qualification for subsidized utility pricing also exemplifies changes in the salience of self-attributes, and even greater esteem for the wealthy by the designation associated with subsidizing poorer people. For all of the income groups, the designation per se becomes a surprisingly salient self-identification, even for residents of poor neighborhoods in accepting an inferior status. Social identities become more rigid as a consequence. In the Colombian case a trade-off exists between economic gain and social stigma for residents of the poorer neighborhoods – an unusual example of a subsidy that cannot be accessed without a visible signal of status, with the potential to contribute to polarization. The Indian cases – relatively prosperous people formally relinquishing subsidies for liquefied petroleum gas (LPG), and some simply passing up the opportunity to buy subsidized grains – comprise personal choices. These demonstrate a combination of noblesse oblige and consumer taste that belie the widespread pessimism toward subsidized pricing. These cases also demonstrate that generosity can exist within the same cultural context as the self-serving behavior displayed by some Indian groups as described in Chapter 7 on affirmative action.