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Optimal Income Support Targeting

Author

Listed:
  • Stefan De Wachter
  • Sebastian Galiani
  • Universidad Torcuato Di Tella
  • Argentina

Abstract

This paper considers the practical problem of distributing a fixed budget for poverty alleviation to a population whose poverty status is not directly observable. Some information on the relationship between poverty status and a number of observable and verifiable characteristics is assumed to be available in the form of a household survey. The solution we propose differs from other academic work in that it explicitly accounts for administrative constraints on the shape of the transfer function and is computationally more straightforward. It improves on the techniques that are commonly used in practice by taking both the concavity of the social welfare function and the entire conditional distribution of poverty status into account, and by endogenously determining the optimal transfer levels. Although the superiority of our allocation rule over other techniques is tautological, we explore the magnitude of the improvement in an artificial dataset. Finally, we provide an intuitive discussion of the defects of currently operational methods.

Suggested Citation

  • Stefan De Wachter & Sebastian Galiani & Universidad Torcuato Di Tella & Argentina, 2000. "Optimal Income Support Targeting," Economics Series Working Papers 41, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:41
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    References listed on IDEAS

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    1. Elbers, Chris & Lanjouw, Jean O. & Lanjouw, Peter, 2002. "Micro-level estimation of welfare," Policy Research Working Paper Series 2911, The World Bank.
    2. Hettich, Walter & Winer, Stanley L, 1988. "Economic and Political Foundations of Tax Structure," American Economic Review, American Economic Association, vol. 78(4), pages 701-712, September.
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    6. Ravallion, Martin & Sen, Binayak, 1994. "Impacts on rural poverty of land-based targeting: Further results for Bangladesh," World Development, Elsevier, vol. 22(6), pages 823-838, June.
    7. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
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    9. Nichols, Albert L & Zeckhauser, Richard J, 1982. "Targeting Transfers through Restrictions on Recipients," American Economic Review, American Economic Association, vol. 72(2), pages 372-377, May.
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    11. Glewwe, Paul, 1992. "Targeting assistance to the poor : Efficient allocation of transfers when household income is not observed," Journal of Development Economics, Elsevier, vol. 38(2), pages 297-321, April.
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    13. S. M. Ravi Kanbur, 1987. "Measurement and Alleviation of Poverty: With an Application to the Effects of Macroeconomic Adjustment (Evaluation quantitative de la pauvreté et remèdes possibles: analyse des effets d'un ajustemen," IMF Staff Papers, Palgrave Macmillan, vol. 34(1), pages 60-85, March.
    14. Datt, Gaurav*Ravallion, Martin, 1990. "Regional disparities, targeting, and poverty in India," Policy Research Working Paper Series 375, The World Bank.
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    Cited by:

    1. Gustavo Ferro & Omar Chisari, 2010. "Tópicos de Economía de la Regulación de los Servicios Públicos," Working Papers hal-00473038, HAL.
    2. Martin Caruso Bloeck & Sebastian Galiani & Federico Weinschelbaum, 2019. "Poverty alleviation strategies under informality: evidence for Latin America," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 28(1), pages 1-40, December.
    3. Galiani, Sebastian & McEwan, Patrick J., 2013. "The heterogeneous impact of conditional cash transfers," Journal of Public Economics, Elsevier, vol. 103(C), pages 85-96.
    4. Aguila, Emma & Kapteyn, Arie & Tassot, Caroline, 2017. "Designing cash transfer programs for an older population: The Mexican case," The Journal of the Economics of Ageing, Elsevier, vol. 9(C), pages 111-121.
    5. World Bank, 2001. "Household Risk, Self-Insurance and Coping Strategies in Urban Argentina," World Bank Other Operational Studies 15467, The World Bank.
    6. Imran Matin & Munshi Sulaiman, 2010. "Targeting Effectiveness of CFPR/TUP in Scale-up Environment," Working Papers id:2568, eSocialSciences.

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    More about this item

    Keywords

    targeting; discriminant analysis; poverty;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics

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