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The Income Lever and the Allocation of Aid

Author

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  • Lidia Ceriani

    (Bocconi University, Milan, Italy)

  • Paolo Verme

    (The World Bank, Washington DC, USA)

Abstract

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).

Suggested Citation

  • Lidia Ceriani & Paolo Verme, 2013. "The Income Lever and the Allocation of Aid," Working Papers 286, ECINEQ, Society for the Study of Economic Inequality.
  • Handle: RePEc:inq:inqwps:ecineq2013-286
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    File URL: http://www.ecineq.org/milano/WP/ECINEQ2013-286.pdf
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    References listed on IDEAS

    as
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    5. Marcelo Medeiros, 2006. "The Rich and the Poor: The Construction of an Affluence Line from the Poverty Line," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 78(1), pages 1-18, August.
    6. Dreher, Axel & Nunnenkamp, Peter & Thiele, Rainer, 2011. "Are ‘New’ Donors Different? Comparing the Allocation of Bilateral Aid Between nonDAC and DAC Donor Countries," World Development, Elsevier, vol. 39(11), pages 1950-1968.
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    More about this item

    Keywords

    Aid distribution; poverty reduction; redistribution policies.;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • F3 - International Economics - - International Finance

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