Working Paper: NBER ID: w24939
Authors: Rema Hanna; Benjamin A. Olken
Abstract: Developing country governments are increasingly implementing cash assistance programs to combat poverty and inequality. This paper examines the potential tradeoffs between targeting these transfers towards low income households versus providing universal cash transfers, also known as a Universal Basic Income. We start by discussing how the fact that most households in poor countries do not pay income taxes changes how we conceptually think about Universal Basic Incomes. We then analyze data from two countries, Indonesia and Peru, to document the tradeoffs involved. The results suggest that, despite the imperfections in targeting using proxy-means tests, targeted transfers may result in substantially higher welfare gains than universal programs, because for a given total budget they deliver much higher transfers to the poor. On the other hand, targeted transfers do lead to more horizontal equity violations, and do create an implied tax on consumption in the region where benefits are phased out. We discuss how alternative targeting approaches, such as community-targeting and self-targeting, can be used to further improve targeting in some situations.
Keywords: Universal Basic Income; Targeted Transfers; Poverty Alleviation; Cash Assistance Programs; Developing Countries
JEL Codes: H53; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| targeted transfers (F16) | horizontal equity violations (J79) |
| community-targeting and self-targeting (R20) | effectiveness of targeted programs (I24) |
| targeted transfers (F16) | higher welfare gains (D69) |
| targeted transfers (F16) | poverty alleviation (I32) |
| inclusion and exclusion errors (C52) | effectiveness of targeted programs (I24) |