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Is More for the Poor Less for the Poor? The Politics of Means-Tested Targeting

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  • Gelbach Jonah B.

    ()
    (University of Maryland and University of California at Berkeley)

  • Pritchett Lant

    ()
    (Harvard University)

Abstract

Standard economic analysis suggests that when the budget for redistribution is fixed, income transfers should be targeted to (i.e. means-tested for) those most in need. However, both political scientists and economists long have recognized the possibility that targeting might undermine political support for redistribution. We formalize this recognition, developing a simple economy in which both non-targeted (universally received) and targeted transfers are available for use by the policymaker. When the budget can be taken as fixed, full use of the targeted transfer is optimal. However, when we allow the budget to be determined through majority voting (with the policymaker choosing the share of the budget to be spent on each type of transfer), the optimal degree of targeting is zero. More strikingly, we show that if the policymaker naively ignores political considerations, the resulting equilibrium actually minimizes not only social welfare, but also the welfare of poor and middle income agents. Thus political considerations cannot generally be regarded as simply another “small" extension of standard models. As a result, future models and actual policies advocating the use of targeting through means-testing should account explicitly for the role of political considerations.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 2 (2002)
Issue (Month): 1 (July)
Pages: 1-28

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Handle: RePEc:bpj:bejeap:v:topics.2:y:2002:i:1:n:6

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Cited by:
  1. Akresh, Richard & de Walque, Damien & Kazianga, Harounan, 2013. "Cash transfers and child schooling : evidence from a randomized evaluation of the role of conditionality," Policy Research Working Paper Series 6340, The World Bank.
  2. De Donder, Philippe & Peluso, Eugenio, 2014. "Politically Sustainable Probabilistic Minority Targeting," TSE Working Papers, Toulouse School of Economics (TSE) 14-509, Toulouse School of Economics (TSE).
  3. Segal, Paul, 2011. "Resource Rents, Redistribution, and Halving Global Poverty: The Resource Dividend," World Development, Elsevier, Elsevier, vol. 39(4), pages 475-489, April.
  4. Janet Currie & Firouz Gahvari, 2007. "Transfers in Cash and In Kind: Theory Meets the Data," NBER Working Papers 13557, National Bureau of Economic Research, Inc.
  5. Mark Gradstein & Era Dabla-Norris, 2004. "The Distributional Bias of Public Education," IMF Working Papers 04/214, International Monetary Fund.
  6. Krishna, Anirudh, 2007. "For Reducing Poverty Faster: Target Reasons Before People," World Development, Elsevier, Elsevier, vol. 35(11), pages 1947-1960, November.
  7. Stephen Howes & Dung Doan, 2012. "Revisiting the relationship between targeting and program performance," Development Policy Centre Discussion Papers, Development Policy Centre, Crawford School of Public Policy, The Australian National University 1212, Development Policy Centre, Crawford School of Public Policy, The Australian National University.
  8. Elbers, Chris & Fujii, Tomoki & Lanjouw, Peter & Ozler, Berk & Yin, Wesley, 2007. "Poverty alleviation through geographic targeting: How much does disaggregation help?," Journal of Development Economics, Elsevier, Elsevier, vol. 83(1), pages 198-213, May.
  9. Mehta, Aashish & Jha, Shikha, 2014. "Pilferage from opaque food subsidy programs: Theory and evidence," Food Policy, Elsevier, Elsevier, vol. 45(C), pages 69-79.
  10. Schüring, Esther & Gassmann, Franziska, 2012. "Whom to target: an obvious choice?," MERIT Working Papers 028, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  11. Margaret Grosh & Carlo del Ninno & Emil Tesliuc & Azedine Ouerghi, 2008. "For Protection and Promotion : The Design and Implementation of Effective Safety Nets," World Bank Publications, The World Bank, number 6582, August.
  12. Ariel Fiszbein & Norbert Schady & Francisco H. G. Ferreira & Margaret Grosh & Niall Keleher & Pedro Olinto & Emmanuel Skoufias, 2009. "Conditional Cash Transfers : Reducing Present and Future Poverty," World Bank Publications, The World Bank, number 2597, August.

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