Poverty and Inequality P2: Targeting and Policies

Question 1

Anti-Poverty Policy:

Objectives:

Answer 1

Objective: (1) maximize coverage and (2) minimize leakage

What is it?

Designed policy specifically aimed at reducing poverty among beneficiaries

Trade-Offs Consider:

1. Equity vs. Efficiency
2. Administrative costs versus Asymmetric information

Question 2

Anti-Poverty Policy:

Issues: (Name)

Answer 2

1. Assymetic Information Problem
2. Costs

Question 3

Anti-Poverty Policy Issues

Issues with Assymetric Information:

Answer 3

I. Adverse selection (attract non-poor)

II. Moral hazard (transfer may alter behavior → incentive to not work possibly

Question 4

Anti-Poverty Policy Issues

Problem and Types of Cost:

Answer 4

I. Administrative Costs:
- - Universal income may be easist (from this pov)
- Costs for government and the poor (forms, travel, stigma)

Options: (a) Hire data people for surveys and have a good tax system (expensive) or (b) have people self-declare → Assymetric informaton issue

II. Incentive Costs

• Can incentivize overestimating poverty line: say more poor to get money
• Not want incentives where non-poor act poor for money (efficiency concerns)

III. Political Economy Costs

• Tax payers would have to pay policy
• Citizens want to minimize own tax

Equity vs. Efficiency issues
Minimize: locate benefit offices closest to those who need them

Question 5

Anti-Poverty Policy:

Mechanisms: (3)

Answer 5

1. Indicators:Based on characterisitics (income, age, gender, disabilitied, thatched roof)
   • means testing
   • But strong incentive effects
2. Self-Targeting:Self-Identifying (workfare, placement of benefits office, food subsidies)
3. Participatory wealth ranking:(Community-based)Rank selves, who deserved transfer

Question 6

Targeting

Types of Targeting:

Answer 6

1. Perfect Targeting
2. Universal Program
3. Mixed Program

Question 7

Types of Targeting

Perfect Targeting:

Answer 7

Identify every y below z and put on z (the poverty gap)

Financing: Non-poor see reduction post-transfer income

Then, if a lot of poor and few taxpayers → hard to do

Note: (costly)

1. Administratively costly
2. Incentive effects (in they stop working → total transfer goes up)
3. Need good tax system
4. Political costs

Question 8

Types of Targeting

Universal Program

Answer 8

Give everybody the poverty line redarless of z

This will eliminate poverty (not inequality)

Notes:

1. Fewer disincentives effects (none)
2. Admin costs low
3. No need good tax system
4. (Bad) Total costs very high
5. (Bad) How to finance this??

Question 9

Types of Targeting

Mixed Program

Answer 9

• Reduce indincentive effects
• Help those close (not below poverty line)

Q those below the poverty line → give z - Z(y) - function of income

When curves cross: ON: Post(y_i)=Pre(y_1) so no tax ABOVE: taxed BELOW: not taxed → give money

Notes:

1. Admin costs lower (relative)
2. Possible incentives low
3. Need good tax system
4. Total costs: between perfect and universal

Question 10

Types of Targeting

Where to get the money?

Answer 10

Where to get the money? (Biggest issue)

• Loans (internationally) → not sustainable
• Foreign aid

🧙🏼 Huge natural resource deposits → revenue expropriate to funding (note: corruption issue)

Question 11

Cash Transfers

Why cash transfers?

And debates:

Answer 11

Why cash transfers? Income support most needy

Debates:

1. Universal vs Targeted
2. Conditional vs. Unconditional
3. Administrative vs Incentive costs
   - Large debate in econ < larger debate in politics

🧙 Evidence (especially from Global South) of positive effects of CTs on well-being

Question 12

Cash transfers

Mechanisms:

Answer 12

CTs efficient if help solve market failure

Two forms:

• Externalities → underinvest in children’s health and schooling
• Intra-household decision-making → decisions nnot reflect women’s and children’s interests

Then, cash transfers:

• Externalities → Make conditonal on education and health
• Intra-Household decisions → Empower women by targeting them with transfer

Question 13

Conditional Cash Transfers (Study)

PROGRESA:

Answer 13

• “Protype” → PROGRESAMexico(subsequently: OPORTUNIDADES)Conditions: (1) children attend school and (2) regular health checksTypically givenn motherExpectations:
  1. Improve schooling
  2. Improve health
  3. Increase women’s empowerment

Based on Sustainable Development Goals:
- Give money to mother: Development Goal #5

• Conditional attending school and health checks: Development Goals #4 and #2

Question 14

Conditonal Cash Transfers

Pros and Cons

Answer 14

Pros:

• Deals disincentive effects
• Direct linked outcomes donors care about

Cons:

• Seen parternalistic
• More administratively costly (collection info and infrustructure costs)
• Sub-optimal for households compared to unconditional

Question 15

Conditional Cash Transfers

Evidence

Answer 15

1. Improves schooling and health
2. Delayed fertility for adolesent girls
3. (New) Reduce adult and child mortality (especially for children and women)

Question 16

Conditional Cash transfers

Non-Targeted Consequences

Answer 16

• Effects women’s empowerment?
• Effects marital outcomes?Increase discourse violence, disillusionment or money leave toxic relationship?
• Effects fertility parents?
• Effects maternal oucome?Decrease num childrenWhy? (1) empowerment and (2) increased access to health services relating to fertility choices
• General Equilibrium effects?Some evidence for inflation

Question 17

Universal Cash transfers

What are they?

Problems need to solve?

Answer 17

1. Large enough cover basic living expenses alone
2. Slow/no-phase out
3. Untargeted, available large population

Problems need to solve:

1. Robotization (increased inequality and labour income stagnation)
2. Welfare traps in existing programs
3. Existing programs not reach all needy groups (characterization hard)

Note: Not even (almost) viable for developing countries because of the lack of physical capacity

“Basic Income” ⇒ Meet basic needs and could be poverty line

“Universal” ⇒ Everyone gets it (no targeting) and unconditional (0-1 participation in labor force)

Question 18

Universal Cash Transfers

Biggest issues need to solve?

And debate

Answer 18

Biggest Issue: FINANCING

Debate:

• Theory vs evidence
• Rigerous evidence lacking
• General equilibrium effects?

Question 19

Unconditional Cash Transfers

What are they?

Answer 19

• CCTs critized parternalistic
• Families know best
• Administratively less costly

Question 20

Unconditional Cash Transfers (Study)

Haushoferand and Shapiro (2016)

Answer 20

• NGO pairing: give directly
• Randomized control trail in western Kenya (2011-2013)
  
  1. T1: Randomize wife/husband
  2. T2: Lum sum/ 9 monthly payments
  3. T3: Size payment

Targetting based on living under thatched roof

Results:

• Invest more (home improvements, change roof)
• Consume more (food and education)
• Less hungry
• No effect alcohol and tobacco consumption
• Increased psychological wellbeing
• Reduced poverty

Question 21

Unconditional Cash Transfers (study)

Malawi

Answer 21

• Malawi

Q: What effect of cash and conditional on outcome (school)?

Q: What effect delaying marriage and child rearing?

Expect: (1) increased labor market participation, (2) better health, (3) better material outcomes, (4) more empowerment household, (5) greater economic growth

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• Unconditional only small dropout rate decrease → conditional better
  
  • Conditional: better scores
  However, marriage and pregency less in unconditional (less incentive for financial reasons)