Equity issues in
non-contributory transfer
programs
PEAM course
May 2006, Washington DC
Emil Tesliuc
Sr Economist, HDNSP
Focus on programs with explicit
poverty alleviation role (i)
Transfer programs for poor, low-income households:
 a. Cash and in-kind transfer programs
 Cash transfers: Family allowances; Non-contributory pensions and
disability transfers
 Food transfers: Food stamps and food rations, Maternal-child
supplements, School feeding and transfers
 b. Subsidies on basic goods
 Food, Housing, Energy and Utilities
 c. Income generations programs
 Labor-intensive public works programs in which the poor work for food
or cash
 d. Protection of human capital
 Conditional Transfers (cash and food)
 Fee waivers
 School vouchers, scholarships, fee waivers for health care services or
for heating in cold climates
Focus on programs with explicit
poverty alleviation role (II)
Typical spending on these programs:
1%-2% of GDP
When well targeted, can have important
role in reducing the depth of poverty
among the poorest 5-20% of the
population
What these programs have in
common?
 Explicit objective:
 Redistribution = transfer of public resources to the poorest
member of the society
 They transfer a private good (cash or in-kind) to
beneficiaries:
 No concerns about externalities (health / immunizations,
education, pollution) or public goods (defense).
 To be cost-effective, SSN transfers should reach
the poor(est) and exclude the rest
Who gets the benefits?
Average Benefit Incidence Analysis (BIA)
 In its most basic form, BIA estimates what share of
benefits is captured by the poorest x% of the population
 Data requirements:
 (representative) household survey with information on
 household welfare (income, consumption);
 recipiency status; and/or
 the value of the transfer received
 Useful to have administrative data on caseload and spending
 Three steps:
 Construct a welfare measure
 Divide the population into quintiles or deciles
 Estimate the share of benefits captured by each quintile / decile
Typical example: Targeting accuracy of
% funds for a given quintile
two programs for low-income households
100
90
80
70
60
50
40
30
20
10
0
87
33
Romania
Poorest
Uzbekistan
Q2
Q3
Q4
Richest
More sophisticated versions of BIA
 Accounting versus Behavioral BIA
 Accounting BIA assumes that household welfare does not
change with the receipt of the transfer
 Behavioral BIA models the household welfare in the absence of
the transfer
 Ex-post versus Ex-ante BIA
 Taken into account the time dimension:
 Average BIA: How are the program benefits distributed across
quintiles?
 Marginal BIA: Was the expansion of the program pro-poor?
 Dynamic BIA: Does the transfer program protect households
against shocks?
Estimating the marginal propensity to consumer
out of transfers – Vietnam & Argentina
Average versus marginal BIA
Table 6: Average versus marginal gains from primary school enrollments in Rural
India
:
Enrollment rate
Quintile
1
2
3
4
5
37.2
48.6
55.8
62.6
67.7
Source: Lanjouw and Ravallion (1999)
Odds of enrollment
Average
Marginal
0.71
0.90
1.08
1.21
1.31
1.10
0.97
0.87
0.67
0.67
Percentage share of subsidy
Average
Marginal
14.2
18.0
21.6
24.2
26.2
22.0
19.4
17.4
13.4
13.4
Use of the BIA analysis
 Benchmarking:
 compare with other similar programs within country, of
from similar countries
 Assessment of targeting accuracy (for transfer
programs with income-based eligibility rules):
 estimate leakage rates
 Starting point for in-depth sector studies
 Example: Armenia PFB Program
Benchmarking: LAC Redistribution Study
Lindert, Skoufias and Shapiro, 2006
Targeting performance for non-contributory programs in ECA
Uzbekistan
Tajikistan
Serbia-Montenegro
Russia
Romania
Benchmarking:
ECA Study on
Targeting
Tesliuc, Grosh,
Coady, Pop
(forthcoming)
Poland
Moldova
Lithuania
Kyrgyzstan
Kazakhstan
Hungary
Georgia
Estonia
Bulgaria
Bosnia Hertzegovina
Belarus
Azerbaijan
Armenia
Albania
0
Q1
Q2
Q3
10
20
30
40
50
60
70
80
90
Share of the beneficiaries from the poorest quintiles
100
Example
Poverty Family Benefit Program, Armenia
Fraction of Social Assistance Budget Captured by Each Quintile
Note: Consumption ranks in 2003 and 1998/9 are not-comparable
% benefits received by quintile
50
45
40
35
30
25
43
20
32
15
10
16
5
1998
Poorest Quintile
1999
Q2
Q3
2003
Q4
Richest Quintile
Year
Common mistakes in BIA
 Poorly defined welfare aggregate
 Use of household, and not population quintiles
 Use of group-specific quintiles instead of
national quintiles
 Misspecification of counterfactual
 Watch for:
 Differences between survey estimates and
administrative data
 Poorly specified survey questions
 use = recipiency * frequency of use * unit subsidy
 payment arrears?
The welfare measure matters for
primary education in Ghana
100
Cumulative subsidy
80
Per capita expenditure
60
Adult equivalent
expenditure
40
20
0
0
20
40
60
80
Cumulative population
100
How quintiles are defined matters
for health in Ghana
100
Cumulative subsidy
80
60
Household quintiles
Population quintiles
40
20
0
0
20
40
60
80
Cumulative population
100
Limitations of the BIA
 Targeting accuracy only on criteria to judge the success
of a transfer program
 Does not tell whether the intended final outcomes are
achieved or not
 Not always the cost of provision reflects the benefit to
the user (food aid in areas with poor supply)
 Unable to assess important public goods or services
(safe water, sanitation, physical infrastructure)
 Ignores general equilibrium & indirect effects on the poor
(e.g. indirect effects of tertiary education)
References
 Lionel Demery (2000), Benefit incidence: a practitioner’s
guide
 Dominique van de Walle (2003), Behavioral Incidence
Analysis of Public Spending and Social Programs in
Evaluating the Poverty and Distributional Impact of
Economic Policies
 Bourguignon, da Silva (2003) Ex-Ante Marginal
Incidence Analysis of Transfer Programs in Evaluating
the Poverty and Distributional Impact of Economic
Policies
 Coady, Grosh, Hoddinott (2005), Targeting of transfers in
developing countries
 Grosh (2005) PER Toolkit, Social protection chapter
 Lindert, Skoufias, Shapiro (2006), How effectively do
public transfers in Latin America redistribute income?