Practise IB Economics HL 3.4.8 by evaluating further policies to reduce poverty and inequality, including transfers, taxation and targeted programmes, with marked exam evidence.
Read the extracts and answer the questions that follow.
Text D - Overview of the Philippines
(1) The Philippines is a country in the Asia-Pacific region. Growth rates of gross domestic product (GDP) in the 2020s are expected to average 5 % per year. With increasing urbanization, a growing middle class and a large, young population, the Philippines' economic growth is based on strong consumer demand.
(2) Although the primary sector is still important, there is stronger growth in the services sector, including tourism and insurance. Remittances from overseas workers also contribute a lot to national income.
(3) The government has made progress in reducing poverty, partly due to policies that encourage workers to leave agriculture for higher wage jobs in other sectors. However, poverty reduction is proceeding slowly, with more than 70 % of the labour force still working in low-wage jobs in the informal economy. The Philippines is vulnerable to natural disasters, such as earthquakes and droughts, which damage the economy and most severely affect the poor who work in farming and fishing. Fish stocks are falling due to illegal fishing and climate change. Agricultural productivity is low and unsustainable practices have caused deforestation.
(4) Infrastructure and public services, including health care and education, are inadequate in many rural areas and there is poor nutrition in low-income households. Rising food and fuel prices will further reduce real incomes. For the lowest income earners, food amounts to 60 % of total expenditure, while the highest income earners spend only 28 % on food. This can be explained by the low-income elasticity of demand (YED) for food.
(5) An expansionary fiscal policy has caused a persistent budget deficit. Higher global energy prices and the depreciation of the peso ( PHP, the Philippine currency) have added to inflationary pressures. In response, the central bank raised its interest rate several times, from 2\% in 2021 to 5.5\% in 2022.
(6) The Philippines has experienced more free trade in agricultural goods following its membership of the ASEAN economic community (a free trade area). For example, a quota on pork imports into the Philippines has been removed.
(7) However, to help local farmers, a 35 % tariff has been placed on rice imported into the Philippines, even though rice and other cereals account for a large proportion of imports. Tariff revenues are used to provide subsidies for modern farm equipment, seeds and training for rice farmers. The aim is to create a more efficient and competitive agricultural sector.
Text E - Reduction of poverty rates in the Philippines
(1) In order to achieve the first Sustainable Development Goal (SDG), the government of the Philippines aims to eliminate extreme poverty by 2040. In 2019, taxes were increased on tobacco, alcohol and e-cigarettes, partly to fund an expansion of the public health care system.
(2) Another programme provides regular cash payments to mothers, conditional on their children regularly attending school and receiving preventive health check-ups. Therefore, it is reducing poverty, improving human capital and increasing gender equality. According to a World Bank study, the Philippines' programme is one of the most efficient social support systems in the world: it costs only 0.4 % of GDP, yet covers nearly 20 million people.
(3) The government gives fuel subsidies to private bus drivers who provide transport in rural areas. In addition, the bus drivers are asking for an increase in the legal minimum price that they charge passengers, although the minimum (floor) price is already above the equilibrium price.
Text F - Infrastructure and job creation in the Philippines
Infrastructure in the Philippines, including infrastructure related to information technology, is being improved, in order to create jobs and connect the poor to more opportunities and basic services. Many projects are financed by Official Development Assistance (ODA), which includes loans and grants. The ODA funding also supports programmes for youth employment and for improving skills. Training is provided for priority areas: agricultural businesses, construction, information technology, management, tourism, and firms run by women entrepreneurs.
Table 3: Economic data for the Philippines
Table 4: Development data for the Philippines
* estimate
Table 5: Selected national income items for the Philippines in 2022*
Figure 2: Net official development assistance (ODA) received by the Philippines from 2017 to 2020 (current US\$ million)
Using information from the text/data and your knowledge of economics, evaluate the policies used in the Philippines to reduce poverty and income inequality.