Informal transfers in low- and middle-income countries: for whom, how much and with what effect?

This working paper is part of a TaxDev research project that explores informal taxes and transfers, this project seeks to tie informal transfers to informal and formal 'fiscal' incidence across taxes and transfers. The questions considered here are:

• What is the scale of informal transfers? How much of the population receive and benefit from such transfers, and at what normal cost?
• Are they progressive or regressive? Do richer and poorer populations benefit equally?
• What poverty reduction effects result?

Key findings

• Informal transfers cover more people than formal social protection in 76 low- and middle-income countries, with 24% of the population in households receiving informal transfers in low-income countries (LICs), 48% in lower-middle-income countries (LMICs) and 27% in upper-middle-income countries (UMICs).
• International remittances account for the majority of informal transfers in a minority of countries, with higher levels of receipt in lower-middle-income countries.
• Both informal and formal transfers are regressive in low-income and lower-middle-income countries – more goes to higher-income groups than poorer people in all 76 countries except China. Extended coverage of public social protection in upper- middle-income countries leads to greater progressivity for public transfers relative to informal transfers.
• Informal transfers play a significant role in poverty reduction and a larger role than public transfers in LICs and LMICs, but a smaller role in UMICs.