More for the poor is less for the poor : the politics of targeting
AbstractStandard economic analyses suggests that when the budget for redistribution is fixed, transfers should be targeted to (that is, means-tested for) those most in need. But both economists and political scientists have long recognized the possibility that targeting could undermine political support for redistribution, and hence reduce the available budget. The authors formalize this recognition, developing a simple economy in which both nontargeted (universally received) and targeted transfers are available. The policymaker chooses the share of the budget to be spent on each type of transfer while the budget is determined through majority voting. Their results are striking. If the policymaker ignores political feasibility and assumes that the budget is fixed, she will choose full targeting of transfers -in the process minimizing social welfare and the utility of the poor. By contrast, when the policymaker recognizes budgetary endogeneity, she will choose zero targeting, spending theentire budget on the universally received transfer. Social welfare, the budget for redistribution, and the utility of poor agents are all maximized in the resulting equilibrium.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1799.
Date of creation: 31 Jul 1997
Date of revision:
Environmental Economics&Policies; Services&Transfers to Poor; Health Economics&Finance; Economic Theory&Research; Poverty Impact Evaluation; Services&Transfers to Poor; Rural Poverty Reduction; Economic Theory&Research; Environmental Economics&Policies; Safety Nets and Transfers;
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