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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.

Suggested Citation

  • Ceriani, Lidia & Verme, Paolo, 2013. "The income lever and the allocation of aid," Policy Research Working Paper Series 6367, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6367

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    References listed on IDEAS

    1. 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.
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    3. 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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    6. 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.
    7. repec:taf:rjapxx:v:20:y:2015:i:2:p:167-177 is not listed on IDEAS
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    9. 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.
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    More about this item


    Regional Economic Development; Rural Poverty Reduction; Services&Transfers to Poor; Achieving Shared Growth; Economic Conditions and Volatility;

    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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