Notes

Targeting within Universal Social Protection | 69

much to target one program or another on the table. It is therefore important to continue to learn from experience about how social protection can be improved.

Although many programs try to differentiate eligibility and benefits, doing so is difficult. It cannot be done without errors and costs. Therefore, the next chapter delves into the empirics to understand the magnitudes of the outcomes and costs of the targeted social assistance programs observed in recent social protection programming in emerging and developing countries. The subsequent chapters take up the processes and methods used to differentiate eligibility and benefits, to learn how they can be done well.

Notes

1. As box O.1 in the overview chapter explains, “welfare” can be defined in various ways. Chapters 2 and 3 take up that discussion in more detail. This chapter uses the term without full specificity because the basic concern of focusing resources on those most in need pertains irrespective of the definition. The chapter uses a measure of money metric welfare as the default interpretation, and eligibility thresholds that can fall anywhere in the range from focusing on the very poor to screening out only the wealthy, but mostly fall below the median level of income. 2. ILO (2012); https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100: 0::NO::P12100_ILO_CODE:R202. 3. The formulae also commonly contain elements of redistribution, such as minimum benefits. 4. https://www.ilo.org/global/topics/social-security/WCMS_378991/lang--en /index.htm. 5. The term “patchwork” is sometimes thought of as derogatory, but it is useful to understand wherein the insult lies. Literally, patchwork is a specific design for quilting patterns (among other popular traditional designs, such as the northern star or wedding ring). Quilting originated as a practical way to produce warmth from pieces of fabric that were each too small to make a good blanket on its own. In that sense, quilting was a way to handle a budget constraint.

When executed well, it produced both warmth and beauty from limited resources. The patchwork design is the simplest to execute as the shapes are simple squares, which are sometimes large and usually uniformly sized. Thus, patchwork is often the first pattern a novice quilter learns. The derogatory use of the term refers not to the idea that the object is a quilt, nor to its potential warmth or beauty, but to the skill of the seamstress. 6. https://www.msn.com/en-ph/money/personalfinance/social-amelioration -program-how-to-qualify-and-how-much-can-you-receive/ar-BB12EtA5; https://www.dof.gov.ph/dof-says-covid-19-emergency-subsidy-largest -social-protection-program-in-phl-history/. 7. The notion of “the poverty line” in this formulation can be interpreted more flexibly as an eligibility threshold or suite of thresholds for different programs

70 | Revisiting Targeting in Social Assistance

that may be lower or higher or dispersed around whatever poverty line is used for analytic and poverty tracking purposes. This is consistent with how policy is actually made in most of the world and generalizes the discussion of targeting beyond the cost-minimizing way of reducing absolute poverty to the much wider question of how to move resources toward the “left side” of the welfare distribution, perhaps with a notion of being more progressive than the market income, the taxes that would support the transfer, or an alternative social policy option. 8. They may also face transactions costs of receiving benefits, for example, time or fees incurred in going to pay points or maintaining bank accounts into which benefits are paid. But these costs are not related to the determination of eligibility for the program. 9. In economic pedagogic presentations, the solution to the problem is sometimes referred to as “optimal” targeting to emphasize the notion that, in mathematical parlance, “optimum” may be different from “maximum” or “perfect” targeting. This also draws parallels to the usage in optimal tax theory. In common

English, optimal targeting sounds close in meaning to maximum, so we fear it would connote a prejudice toward focusing on perfect targeting. However, most countries and programs implement much more moderate solutions. 10. In mathematical terms, shocks can be positive or negative, but in English, the tendency is not to call sudden increases in income “shocks” but “good fortune.”

Thus, public policy is not generally concerned with positive shocks, although by virtue of higher income, a person might face higher taxes or lose eligibility for benefits from differentiated programs if the changes are large or permanent enough to be observed. 11. On the transfer side, use of the term “flat” is often in an absolute sense, such as when everyone gets a benefit of $20. On the revenue side, there is a tendency to refer to rates. So a flat tax rate could collect 10 percent of income from everyone. For a person with $100 in income, the tax would collect $10. For a person with $300 in income, it would collect $30. Thus, on net, a flat benefit of $20 financed by a flat tax rate of 10 percent would redistribute income to the first person (who pays $10 in taxes and gets $20 in transfers) from the second (who pays $30 in taxes and gets $20 in transfers). 12. This analysis does not include the impact of indirect taxes on consumption, such as goods and services, value added, or excise taxes. Such taxes are generally neutral at best and often somewhat regressive in formalized advanced economies. 13. The regressivity of indirect taxes can be overstated in developing countries, and indirect taxes may occasionally even be progressive (although not as progressive as income taxes). This is because poorer households buy more from informal locations and so pay less tax than those buying at formal locations. Bachas,

Gadenne, and Jensen (2020) summarize the informality Engel curve for 31 countries. 14. There is an unresolved methodological question in the field. That is, should contributory pensions be treated as deferred income or transfers? The

Commitment to Equity project presents all results with both calculations. This essay reports the results for contributory pensions treated as deferred income,