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Public Finance, Governance, and Cash Transfers in Alleviating Poverty and Inequality in Chile

  • Claudio Agostini

    ()

    (ILADES-Georgetown University, Universidad Alberto Hurtado)

  • Phillip Brown

    ()

    (Colby College, Waterville, Maine, United States and International Food Policy Research Institute, Washington, D.C., United States.)

  • Diana Paola Góngora

    ()

    (ILADES-Georgetown University, Universidad Alberto Hurtado)

As the Chilean government seeks to reduce both poverty and inequality through cash transfers to poor households, local governments are responsible for both identifying the poor and allocating transfers. Until recently, however, evaluating the effectiveness of local governments in enacting these policies has been restricted by data limitations. The paper builds on recent evidence that cash transfers had highly variable impacts on poverty and inequality at the county level in 2002. In particular, we explore how local public finance and the strength of the governing mandate influence the efficiency of cash transfers. With a richly-specified model, we find that public spending on goods and services, the fraction of available subsidies claimed by the local government, and the share of county land that is zoned for industrial purposes are all correlated with considerable reductions in poverty and inequality. In addition, the strength of the governing mandate weakly influences the efficiency of transfers in reducing poverty, but not inequality. These results demonstrate that a better understanding of such institutions can lead to more efficient targeting for social programs.

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Paper provided by Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines in its series ILADES-Georgetown University Working Papers with number inv225.

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Length: 28 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:ila:ilades:inv225
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