For every dollar invested in health and education, three need to be spent on direct social assistance in order to achieve the same effect on poverty reduction.

The report “Impact of Public Expenditure on Poverty Reduction and Inequality” by the Nicaraguan Foundation for Economic and Social Development (FUNIDES) has similar conclusions to similar studies carried out in other countries: “In estimating the effect of public interventions on poverty reduction, it was identified that poverty was reduced from 7.2 to 10.1 percent depending on the poverty line used (US $1.8, US $2 and US $2.6), mainly due to social spending in healthand education. On the other hand, the contribution made by electricity subsidies did not compensate for the reduction in incomes in households caused by payment of indirect taxes, therefore it did not affect poverty reduction.

“… it has been identified that the tax system increases poverty and does not achieve a significant decrease in inequality. Because a large part of the population density is around the poverty line and income in developing countries such as Nicaragua suffers from volatility, public intervention has a greater impact on poverty reduction than on reduction of vulnerability. This suggests that social programs alleviate poverty in the short term, but if the family fails to receive them it can fall into poverty in the medium term.”

“… Social programs do not reduce vulnerability of falling into poverty, which means that if households stop receiving them, they can fall into poverty.  
Therefore, boosting spending on health and education which has a significant impact on reducing levels of vulnerability of falling into poverty, can be a structural exit to it. It is hoped that investment in human capital will lead to better jobs in the future.”

See full report by Funides. (In Spanish)