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

35 Pages Posted: 5 Sep 2018

See all articles by Rema Hanna

Rema Hanna

Harvard University - Harvard Kennedy School (HKS)

Benjamin A. Olken

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Society of Fellows

Multiple version iconThere are 2 versions of this paper

Date Written: August 30, 2018

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.

JEL Classification: H53, O12

Suggested Citation

Hanna, Rema and Olken, Benjamin A., Universal Basic Incomes vs. Targeted Transfers: Anti-Poverty Programs in Developing Countries (August 30, 2018). HKS Working Paper No. RWP18-024. Available at SSRN: https://ssrn.com/abstract=3242291 or http://dx.doi.org/10.2139/ssrn.3242291

Rema Hanna (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
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Benjamin A. Olken

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
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Cambridge, MA 02142
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617-253-6833 (Phone)
617-253-1330 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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617-588-1407 (Phone)

Harvard University - Society of Fellows

Cambridge, MA 02138
United States

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