Reaching poor areas in a federal system

The author studies how well a federal antipoverty program reaches poor areas, taking the reactions of lower levels of government into account. He studies performance in reaching poor areas before and after World Bank-sponsored reforms in Argentina's anitpoverty program. Program resources were substantially reallocated across provinces when Argentina's Trabajar 1 program was replaced by Trabajar 2, with increased spending and greater targeting to poor areas. Overall, performance in reaching poor areas (regardless of province) improved nationally. About a third of the gain in the program's ability to reach poor areas was attributed to the program's greater ability to reach poor provinces. The rest was attributed to better targeting of poor areas within provinces. The provinces differed greatly in ability to reach poor areas. Historymattered. Differences in performance after reform partly reflected differences under the old program. Controlling for those factors, however, poorer provinces were less successful in targeting their poor areas. A higher provincial poverty rate attracted more central spending, which tended to result in more pro-poor spending within provinces. But even with greater central spending on poor provinces, poorer provinces were less successful at discriminating in favor of their poor areas. Decentralization generated substantial horizontal inequality in public spending on poor areas. The center clearly needs to give provincial governments stronger incentives to target the poor. Allocations to a province should depend not only on how poor the province is but on how successfully it discriminates in favor of poor areas. The results of this study suggest that stronger incentives are needed.