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The income lever and the allocation of aid

  • Ceriani, Lidia
  • Verme, Paolo

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 allocation of aid. The authors call this concept the income lever. Making use of tax and distributive theory, the paper shows how different redistributive criteria correspond to the different normative criteria of the income lever. It then constructs various income lever indexes based on these criteria and uses such indexes to rank countries according to their own capacity to reduce poverty. 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). The findings indicate that the allocation of social funds in the European Union follows closely the rank that results from the income lever indexes proposed while the allocation of aid to Sub-Saharan African countries does not.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6367.

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Date of creation: 01 Feb 2013
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Handle: RePEc:wbk:wbrwps:6367
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  1. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2010. "Are ‘New’ Donors Different? Comparing the Allocation of Bilateral Aid between Non-DAC and DAC Donor Countries," Kiel Working Papers 1601, Kiel Institute for the World Economy.
  2. Denis Cogneau & Jean-David Naudet, 2004. "Who deserves aid? Equality of opportunity,international aid and poverty reduction," Working Papers DT/2004/10, DIAL (Développement, Institutions et Mondialisation).
  3. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
  4. 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.
  5. Andreas Peichl, 2007. "Measuring richness," German Stata Users' Group Meetings 2007 06, Stata Users Group.
  6. Peichl, Andreas & Pestel, Nico, 2011. "Multidimensional Affluence: Theory and Applications to Germany and the US," IZA Discussion Papers 5926, Institute for the Study of Labor (IZA).
  7. 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.
  8. 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.
  9. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
  10. 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.
  11. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  12. Peter Nunnenkamp & Rainer Thiele, 2006. "Targeting Aid to the Needy and Deserving: Nothing But Promises?," The World Economy, Wiley Blackwell, vol. 29(9), pages 1177-1201, 09.
  13. 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.
  14. 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.
  15. Michal Brzezinski, 2010. "Income Affluence in Poland," Social Indicators Research, Springer, vol. 99(2), pages 285-299, November.
  16. 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.
  17. 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.
  18. John Roemer & Humberto G. Llavador, 2003. "An Equal-Opportunity Approach to the Allocation of International Air," Working Papers 9910, University of California, Davis, Department of Economics.
  19. 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.
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