Counting and Accounting: Measuring the Effectiveness of Fiscal Policy in Multidimensional Poverty Reduction

In this paper we propose indicators of impact and spending effectiveness of fiscal interventions for multidimensional poverty reduction. In the impact effectiveness indicator, the observed poverty reduction is compared against the optimal reduction that could have been achieved. In the spending effectiveness indicator, the observed spent budget is compared with the minimum budget that could have been spent to achieve the observed poverty reduction. We consider two alternative criteria to find the optimal allocation: one that prioritizes reducing poverty to the biggest number of people and another which prioritizes reducing poverty among the poorest poor. The proposed methodology can be implemented using cross-sectional household survey (or census) data, alongside information on the cost of removing each deprivation at the household level, and information on public spending. The methodology can be implemented ex-post, as an effectiveness assessment, as well as ex-ante, to guide a multidimensional poverty reduction program.