Financing a Universal Child Benefit by taxing Illicit Financial Flows in Ghana

Universal social protection is increasingly recognized as a central instrument for achieving the United Nations 2030 Agenda commitment to “leave no one behind.” By guaranteeing income security for all, universal policies enhance equity, reduce stigma, and limit exclusion errors that commonly affect means-tested programmes, particularly in low-capacity settings. However, their adoption in low- and middle-income countries (LMICs) is often constrained by concerns over fiscal affordability, driven by cost estimates that assume financing through broad-based and potentially regressive taxation.

This study challenges the perception that universalism is fiscally unattainable by examining an alternative, progressive source of financing: the recovery of Illicit Financial Flows (IFFs). IFFs, linked to practices such as tax evasion, trade mis-invoicing, and money laundering, undermine fiscal capacity and reduce resources available for social investment. Despite their scale, they remain largely absent from debates on financing universal social protection.

The analysis focuses on the feasibility and impacts of a Universal Child Benefit (UCB), a policy choice that is both strategic and urgent given the high incidence of child poverty and the long-term developmental consequences of deprivation. The empirical application centers on Ghana, a country characterized by a large child population, limited child-focused social protection, persistent rural poverty, and substantial revenue losses associated with trade mis-invoicing. These features make Ghana an informative case for assessing whether IFF recovery could meaningfully expand fiscal space for universal policies.

The study simulates two budget-neutral UCB schemes financed through the hypothetical recovery of revenues lost to trade mis-invoicing. The first scheme provides a flat transfer to all households with at least one child, while the second offers a higher benefit to households with four or more children. The analysis combines a tax-benefit microsimulation model with a Social Accounting Matrix to estimate revenue losses and redistribution effects under the existing tax structure. To complement household-level impacts on poverty and inequality, a macro-development framework is used to project potential effects on broader development outcomes if recovered revenues were allocated following historical public spending patterns.

Results indicate that financing a UCB through IFF recovery can generate meaningful reductions in poverty and inequality, particularly among rural households, larger families, and children. Both schemes achieve substantially higher coverage and greater equity than existing targeted programmes, despite relying on a relatively limited revenue base. Beyond income effects, projections suggest positive spillovers for child-related development outcomes, including health, education, and access to essential services.

The study makes three main contributions. First, it demonstrates that universal social protection can be fiscally plausible in LMICs when financed through progressive and underutilized revenue sources. Second, it provides empirical evidence on the distributional and developmental impacts of a UCB in a sub-Saharan African context marked by high child poverty and targeting challenges. Third, it bridges social protection and tax policy, highlighting how revenue composition critically shapes equity, effectiveness, and political feasibility.