Addressing persistent inequalities in income and other dimensions of wellbeing is a key policy objective of the Sustainable Development Goal 10. Multilateral and bilateral donor agencies have been directing their efforts towards promoting good governance, human and economic development, fighting hunger and reducing inequality. 

The increase in development funding towards inequality reduction is accompanied by a need to monitor progress on the SDG 10 but most importantly, by the need to evaluate the contribution of development towards achieving this goal. However, measuring the distributional impacts of development cooperation projects is a challenging task due to a myriad of factors, including the effects that domestic redistributive policies, the structure of labour markets and other factors, such as institutions, have on inequality. The methodology developed by Morabito et al. enables the analysis of the potential contributions of development projects on inequality by looking primarily at the extent to which they disproportionally benefit the most vulnerable through a mix of analytical tools (a scoreboard, a statistical analysis of development projects based on the Equity Tool, a fiscal incidence analysis).

This methodology has first been tested on three development projects funded by AFD in Cameroon, Colombia and Tunisia as part of the first phase of the Research Facility on Inequalities. 

A second phase of the research project was launched in 2022 with the aim to extend the initial phase, to further test the validity of the methodology with respect to income and other forms of inequalities and to develop the guidelines for an inequality marker.

The initial phase of the  project aimed at piloting the application of the methodology developed by the researchers on three projects funded by the AFD: 

1. A programme supporting urban housing improvements in Tunisia;
2. A programme focusing on capacity-building of Small- and Medium-Sized Enterprises in Cameroon;
3. A budget support operation aimed at supporting a health sector reform in Colombia.

The objective was to test the methodology and evaluate the relevance of its results, and, based on these findings, to review and adjust the methodology itself.

The second phase of the project aimed:

1. To develop the guidelines for an inequality marker for development cooperation;
2. To further test the methodology on four AFD and EU development programmes: a programme promoting sustainable access to electricity for the unserved poor rural populations in Benin; a programme improving the health and living conditions of the inhabitants of the rural district of Isingiro (Uganda) and its refugee camps; a programme facilitating trade between Ethiopia and Djibouti and enabling businesses and producers, as well as the most vulnerable populations, to benefit from these improvements; and a programme contributing to the adaptation of the communities to climate change in Vietnam. 

The initial study identified whether programmes’ beneficiaries of the three selected interventions belonged to the Bottom 40% of the wealth distribution, through a mix of analytical tools:

1. First, a scoreboard that assessed whether or not inequality reduction was a central objective of development programmes;
2. Second, the Equity Tool, which helped assess the position of direct beneficiaries within the national (urban or rural) wealth distribution;
3. Third, the Commitment for Equity Tool, which helped estimate the distributional impact of general or sectoral budget support.

The methodological steps of the second phase of the research project were the following:

• Refining and upgrading the inequality markers and the scoreboard to provide clear benchmarks and indicators, aligned with evaluation approaches used by the European Commission, to assess whether development interventions focus on the poorest bottom 40% individuals, households or vulnerable groups that are targeted by specific development policies;
• Extending the scope of the Equity Tool questionnaire to include questions that capture the distribution of projects beneficiaries among vulnerable groups (women, ethnic, religious minorities, etc.);
• Applying the revised methodology to the four case studies.

Results of the first phase of the project

Overall, the results underscore the importance of considering a pro-poor targeting ex-ante when designing development cooperation interventions that explicitly (or implicitly) aim to contribute to the reduction of inequalities in partner countries. The main strength of the methodology is that it allows an assessment of the potential reach of interventions for the bottom 40 percent of the income distribution. Therefore, the information provided thanks to this methodology can be critical to fine-tune policies before they are implemented and maximize their redistributive impact.

You may find the research paper here: The distributional impacts of development cooperation projects

Results of the second phase of the project

The second phase of this project resulted in:

• The elaboration of guidelines for the implementation of the methodology, which were used to develop the European Commission's Inequality Marker. The I-Marker assesses whether, and to what extent, inequality reduction is an objective of development intervention. For this purpose, a set of criteria has been developed to establish if: - I-0: Inequality reduction is not targeted; - I-1: Inequality reduction is a significant objective; - I-2: Inequality reduction is the principal objective. The I-Marker focuses on the bottom (poorest) 40% or socio-economically disadvantaged individuals, households or groups. Watch the video on the Inequality Marker for more information.
• A report on the testing of the methodology on the four case studies : Assessing the distributional impacts of development interventions - the Inequality Marker

This project highlighted the importance of identifying direct and indirect beneficiaries of the projects, but also, more broadly, of having a complete understanding of the development cooperation interventions, which are being analyzed, especially their objectives and conditionalities. 

Equally important is the involvement of key stakeholders to communicate the objectives, scope and limitations of the studies. In some cases, the inclusion of a qualitative component in the form of interviews, consultations, or eventually field missions, may be required to ensure the successful implementation and completion of studies.

In the first phase of the project, Morocco, South Africa, Cameroon and Kenya were selected to participate in the research, analysis, and policy recommendations program, which significantly enhanced the evidence base for efficient and thoughtful redistributive fiscal policy that protects poor and vulnerable households from further impoverishment.  Each of these countries learned from, and in some cases incorporated, the successful programmatic experiences from the others. The work program that the AFD-CEQ partnership encompasses also promoted skills sharing and capacity building between countries.

Part of the second phase of this project focuses on Senegal, which is facing a number of important, sometimes contradictory challenges, likely to bring about lasting changes to the social contract and the redistribution of national income, such as: 

• the development of gas and oil deposits (and the collection of the associated tax revenues),
• the implementation of a just energy transition partnership (JETP), which at the same time calls for the decarbonisation of growth,
• the desired extension of social protection schemes (health, retirement) to accompany a demographic transition that is still underway,
• the dismantling of energy subsidies to finance more infrastructure and develop better-targeted subsidies for poor households. 

There is strong social demand for policies to reduce inequality, but this is taking place against a backdrop of regional instability, increased conflict, global inflation and global warming.

This analysis will be conducted in partnership with the Directorate General of Planning and Economic Policies of the Senegalese Ministry of Planning and the World Bank.
 

The development of the CEQ Assessments, which are the centerpiece of the AFD-CEQ Institute partnership, accomplish two major objectives simultaneously:

1. The implementation of CEQ Assessments builds an empirical evidence base (country by country) of the redistributive and poverty-reduction impact of fiscal policy broadly, as well as of individual fiscal elements (revenues or expenditures).
2. The implementation of CEQ Assessments together with local research teams completes a knowledge and skill transfer to researchers and policy officers who will remain close to the ongoing policy debate and policy-making bodies who benefit from having this information at their disposal.  

The AFD-CEQ Institute partnership therefore leaves in place the basic human infrastructure necessary for additional fiscal incidence analysis, including forward-looking policy simulation.

As part of the second phase of the project, the aim is for Senegal to master the CEQ tax incidence analysis tool and study a series of pro-poor reforms to reduce social and/or regional inequalities. 

The expected deliverable is a report quantifying the impact of 5 areas of reform (cost, effects, financing).

The CEQ Assessment is a comprehensive and rigorous tax and benefit incidence analysis which enables to have an active engagement with the policy community.It is designed to address the following four questions: 

1. How much income redistribution and poverty reduction are being accomplished through fiscal policy?
2. How equalizing and pro-poor are specifics taxes and government spending?
3. How effective are taxes and government spending in reducing inequality and poverty?
4. What is the impact of fiscal reforms that change the size and/or progressivity of a particular tax or benefit?

In order to address these questions, experts from the CEQ working along with AFD researchers and local researchers teams implemented the CEQ methodology in Morocco, South Africa, Cameroon and Kenya, and will do so in Senegal.

Once done, the objective is to mainstream the use of CEQ Assessments:

• By reaching out to the policy community through partnerships and policy forums;
• By disseminating findings through an active communication and advocacy program, undertaken in conjunction with key partners in the research, philanthropic and social activist communities.

You can find below the various publications related to this research project.