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Statistical Issues in Allocating Funds by Formula
point out some practices that are likely to be beneficial if they could be adapted.
Unlike the other formula allocation programs the panel studied, the UN’s system for determining member states’ contributions involves a formula that allocates a tax rather than a benefit. Nevertheless, it has many of the characteristics of conventional formula allocation programs that transfer funds in the opposite direction. When the United Nations came into existence it instituted a mechanism that would systematically allocate the contributions to be secured from member states to finance its operations. Thus a scale of assessments was formulated and since then has been the basis on which the expenses are distributed among the membership. It was recognized that no perfect formulation existed or could exist. Instead it was understood that the best formula was one for which a consensus existed. The underlying principle of this scale of assessment was that expenses should be apportioned according to capacity to pay. At that time it was recognized that it would be difficult to measure such capacity merely by statistical means and that it would be impossible to arrive at any definitive formula. In order to avoid anomalous assessments resulting from the use of comparative estimates of national income, other factors were also to be considered. Taken together, all of these have led to the basic elements of the current assessments methodology.
Income as measure of capacity to pay. The economic basis for assessment is the concept of “capacity to pay.” Comparative estimates of income (gross national product or GNP) are determined to be the fairest guide in measuring this capacity. Other measures, such as wealth, socioeconomic indicators, dependence on one or a few primary products, and deteriorating terms of trade, had also been considered, but problems arising with the availability, reliability, and comparability of existing data for all member states precluded their use.
Low per capita income allowance. In order to prevent anomalous assessments resulting from the use of comparative levels of income, comparative income per head of population is factored into the formula through the application of the low per capita income allowance formula (LPAF). LPAF embodies the principle that citizens of a rich country contribute a larger share of their taxes toward the United Nations than those of a poor