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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Friebel, Guido / Mendola, Mariapia / Requate, Till / Tsui, Kevin / Wichardt, Philipp / Zulehner, Christine

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Is More for the Poor Less for the Poor? The Politics of Means-Tested Targeting

Jonah B. Gelbach1 / Lant Pritchett2

1University of Maryland and University of California at Berkeley,

2Harvard University,

Citation Information: Topics in Economic Analysis & Policy. Volume 2, Issue 1, ISSN (Online) 1538-0653, DOI: 10.2202/1538-0653.1027, July 2002

Publication History

Published Online:
2002-07-17

Abstract

Standard economic analysis suggests that when the budget for redistribution is fixed, income transfers should be targeted to (i.e. means-tested for) those most in need. However, both political scientists and economists long have recognized the possibility that targeting might undermine political support for redistribution. We formalize this recognition, developing a simple economy in which both non-targeted (universally received) and targeted transfers are available for use by the policymaker. When the budget can be taken as fixed, full use of the targeted transfer is optimal. However, when we allow the budget to be determined through majority voting (with the policymaker choosing the share of the budget to be spent on each type of transfer), the optimal degree of targeting is zero. More strikingly, we show that if the policymaker naively ignores political considerations, the resulting equilibrium actually minimizes not only social welfare, but also the welfare of poor and middle income agents. Thus political considerations cannot generally be regarded as simply another “small" extension of standard models. As a result, future models and actual policies advocating the use of targeting through means-testing should account explicitly for the role of political considerations.

Keywords: political economy; targeting; social insurance

Citing Articles

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[1]
Anirudh Krishna
World Development, 2007, Volume 35, Number 11, Page 1947
[2]
Chris Elbers, Tomoki Fujii, Peter Lanjouw, Berk Özler, and Wesley Yin
Journal of Development Economics, 2007, Volume 83, Number 1, Page 198
[3]
W. Steven Barnett
International Journal of Child Care and Education Policy, 2010, Volume 4, Number 1, Page 1
[4]
Leah Brooks and Maxim Sinitsyn
Housing Policy Debate, 2014, Volume 24, Number 1, Page 119

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