Universal Basic Incomes versus Targeted Transfers: Anti-Poverty Programs in Developing Countries

Abstract

Of the 17 Sustainable Development Goals articulated by the United Nations, number one is the elimination of extreme poverty by 2030. While future economic growth should continue to reduce poverty, it will not solve the problem by itself; thus, there is a potentially important role for national-level transfer programs that assist poor families in developing countries. Such programs are often run by developing country governments. Many countries have implemented transfer programs that seek to target beneficiaries: that is, to identify who is poor and then to restrict transfers to those individuals. Some people have begun to advocate for “universal basic income” programs, which dispense with trying to identify the poor and instead provide transfers to everyone. We begin by considering the universal basic income as part of the solution to an optimal income-taxation problem, focusing on the case of developing countries, where there is limited income data and inclusion in the formal tax system is low. We examine how the targeting of transfer programs is conducted in these settings, and provide empirical evidence on the tradeoffs involved between universal basic income and targeted transfer schemes using data from Indonesia and Peru—two countries that run nationwide transfer programs that are targeted to the poor. We conclude by linking our findings back to the broader policy debate on what tools should be preferred for redistribution, as well as the practical challenges of administering them in developing countries.

Welfare and redistributive effects of social assistance in the Global South

“…6 These normative principles have provided a solid ground for a poverty targeting approach when designing and implementing social assistance programs. In fact, recent evidence shows that under budgetary constraints, poverty targeting performs much better than universal programs in terms of welfare gains, even after accounting for the diminishing effects of imperfect targeting due to exclusion and inclusion errors (Hanna and Olken 2018;Grosh and Leite 2009).…”

Evaluasi kebijakan pro masyarakat miskin (studi kasus program raskin di Kabupaten Manokwari)

“…Dengan demikian, kebijakan pengentasan kemiskinan yang dapat mendukung agar pertumbuhan rata-rata terjadi dengan distribusi pendapatan yang menguntungkan mutlak diperlukan. Hal inilah yang kemudian mendorong terciptanya berbagai macam program pengentasan kemiskinan di negara-negara berkembang (Hanna & Olken, 2018;Khemili & Belloumi, 2018a;dan Banerjee et al, 2015) yang tujuannya untuk menstabilkan pendapatan kelompok penduduk miskin dan memperkecil gap distribusi pendapatan.…”

Some results from the theory of optimal taxation and their relevance for increasing the progressiveness of Indian tax structure

“…There are also incentives for many workers in this sector to under-report their incomes to claim benefits from targeted welfare programmes of the government. As noted by Hanna and Olken (2018), most developing countries in the world rely on proxy-means tests based on directly verifiable and observable information on household assets or amenities rather than on self-reported incomes to classify and target households that are deserving of benefits. However, in the case of India, these authors note that targeting is implemented without a proxy-means test.…”