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The Income Lever and the Allocation of Aid

  • Lidia Ceriani

    (Bocconi University, Milan, Italy)

  • Paolo Verme

    (The World Bank, Washington DC, USA)

The paper develops a concept and a measure of the monetary capacity of a country to reduce its own poverty and shows how these tools can be used to guide budget allocations or the distribution of Aid. We call this concept the income lever and define it as the relation between the welfare of the poor and the welfare of the non-poor in a given society. Making use of tax and distributive theory, the paper shows how to different redistributive criteria correspond different normative criteria of income lever. We then construct various income lever indexes based on these criteria and use such indexes to rank countries according to their own monetary poverty reduction capacity. As shown in the empirical application, this methodology can provide an equitable tool to rank countries or regions when it comes to budget or Aid allocations, whether it is the allocation of social funds within the European Union (North-North transfers) or the allocation of Aid from rich to poor countries (North-South transfers).

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File URL: http://www.ecineq.org/milano/WP/ECINEQ2013-286.pdf
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Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 286.

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Length: 30 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2013-286
Contact details of provider: Web page: http://www.ecineq.orgEmail:


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  1. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
  2. Eisenhauer, Joseph G., 2011. "The rich, the poor, and the middle class: Thresholds and intensity indices," Research in Economics, Elsevier, vol. 65(4), pages 294-304, December.
  3. Andreas Peichl & Nico Pestel, 2013. "Multidimensional affluence: theory and applications to Germany and the US," Applied Economics, Taylor & Francis Journals, vol. 45(32), pages 4591-4601, November.
  4. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2010. "Are ‘New’ Donors Different? Comparing the Allocation of Bilateral Aid between Non-DAC and DAC Donor Countries," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 25, Courant Research Centre PEG.
  5. Chauvet, Lisa, 2003. "Socio-political instability and the allocation of international aid by donors," Economics Papers from University Paris Dauphine 123456789/5404, Paris Dauphine University.
  6. Naudet, Jean-David & Cogneau, Denis, 2007. "Who deserves aid? Equality of opportunity, international aid and poverty reduction," Economics Papers from University Paris Dauphine 123456789/4461, Paris Dauphine University.
  7. Nunnenkamp, Peter & Thiele, Rainer, 2006. "Targeting aid to the needy and deserving : nothing but promises?," Open Access Publications from Kiel Institute for the World Economy 3875, Kiel Institute for the World Economy (IfW).
  8. Quiggin, John & Mahadevan, Renuka, 2010. "The Poverty Burden: A Measure of the Difficulty of Ending Extreme Poverty," Risk and Sustainable Management Group Working Papers 151524, University of Queensland, School of Economics.
  9. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  10. David Fielding & George Mavrotas, 2008. "Aid Volatility and Donor-Recipient Characteristics in 'Difficult Partnership Countries'," Economica, London School of Economics and Political Science, vol. 75(299), pages 481-494, 08.
  11. Carl-Johan Dalgaard & Lennart Erickson, 2007. "Reasonable Expectations and the First Millennium Development Goal: How Much Can Aid Achieve?," Discussion Papers 07-18, University of Copenhagen. Department of Economics.
  12. Dollar, David & Alesina, Alberto, 2000. "Who Gives Foreign Aid to Whom and Why?," Scholarly Articles 4553020, Harvard University Department of Economics.
  13. William Easterly & Ross Levine & David Roodman, 2004. "Aid, Policies, and Growth: Comment," American Economic Review, American Economic Association, vol. 94(3), pages 774-780, June.
  14. Hristos Doucouliagos & Martin Paldam, 2005. "Aid Effectiveness on Growth. A Meta Study," Economics Working Papers 2005-13, School of Economics and Management, University of Aarhus.
  15. Andreas Peichl, 2007. "Measuring richness," German Stata Users' Group Meetings 2007 06, Stata Users Group.
  16. Marcelo Medeiros, 2006. "The Rich and the Poor: The Construction of an Affluence Line from the Poverty Line," Social Indicators Research, Springer, vol. 78(1), pages 1-18, 08.
  17. Michal Brzezinski, 2010. "Income Affluence in Poland," Social Indicators Research, Springer, vol. 99(2), pages 285-299, November.
  18. Stijn Claessens & Danny Cassimon & Bjorn Van Campenhout, 2009. "Evidence on Changes in Aid Allocation Criteria," World Bank Economic Review, World Bank Group, vol. 23(2), pages 185-208, June.
  19. Llavador, Humberto G. & Roemer, John E., 2001. "An equal-opportunity approach to the allocation of international aid," Journal of Development Economics, Elsevier, vol. 64(1), pages 147-171, February.
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