Summary

124 | Revisiting Targeting in Social Assistance

Summary

This short benchmarking has underscored important features of empirical outcomes from social assistance practice in developing countries: • Details of data matter. This chapter exploited the strength of data for a large number of countries and standardized methods, but it was somewhat hampered by the limitations of grouping program observations within harmonized program types and relatively sparse coverage of low-income countries. • The degree of variation in every indicator examined is quite remarkable. • Regularities are nonetheless present and in expected directions: ° Coverage by social assistance is 36 percent for the world as a whole and 54 percent for the poorest quintile. ° The range of coverage among countries is quite broad, from virtually none to virtually all of the poorest quintile covered, but there are truncations of the range at the extremes of the country income groups. None of the low-income countries manages to cover more than about half the poorest quintile, and none of the World Bank client high-income countries covers less than half the poorest quintile. In low-income countries, on average, only 17 percent of the people in the poorest quintile are covered by social assistance, whereas the figure is 77 percent for high-income countries. ° Incidence is progressive, but incidence graphs aggregated across countries by program type look more like a mildly sloped hill than a sharp step function. In the program aggregations, the share of beneficiaries in the poorest quintile ranges from 30 to about 50 percent, depending on program type. ° There is even more variability at the level of the individual country and program type. Unconditional cash transfers are the program category with the most observations and the most variability. Between 6 and 73 percent of the beneficiaries of unconditional cash transfers are in the poorest quintile of the population. ° Scoring well on incidence and coverage is associated with the degree to which the program lowers the poverty gap, but incidence much more strongly so. Very large programs tend to have high coverage of the poor but less progressive incidence. An additional 10 percent share to the poorest quintile means the poverty gap falls by an extra $0.10 per $1 spent. ° To produce the strongest impacts on poverty requires both good coverage of the poorest and a meaningful level of benefits. To do it in a fiscally affordable way also requires relatively progressive incidence.

Unpacking the Empirics of Targeting in Low- and Middle-Income Countries | 125

• Using multiple measures of outcomes to consider a program is important.

Unidimensional approaches can give only partial views, at the risk of missing important factors. • It is important to consider costs. ° Concerns about labor disincentives are intuitive and much discussed in the more theory-based literature, but social assistance program designs in developing countries often avoid the features that might be most fraught with disincentives. A growing and robust impact evaluation literature shows that, in general, labor disincentives have not been a big issue; indeed, the programs studied sometimes increase work, formality, or earnings. ° Another often-cited argument against differentiating eligibility or benefits by welfare level is that the administrative costs of doing so can be high. Again, this hypothesis is largely refuted by the available cost data. The costs of large-scale social registries in middle-income countries, which support multiple targeted programs, range between US$1 and US$3 per household in most countries, or 1–3 percent of the value of benefits channeled through the targeting system. Relative costs are higher in low-income countries with more nascent systems, as they have not yet “amortized” the startup costs or reached large scale, on the order of 7–8 percent. ° Transaction costs are also nonzero, but their most worrisome aspect is in the errors of exclusion that can result, and those are accounted for already in the coverage/incidence counts. ° The stigma or reduction in social cohesion that may result from focusing benefits on the poorer and the loss of political support (discussed in the chapter 1) are the most difficult factors to quantify and weigh in the ledger of pros and cons.

Although the presence of imperfections and costs may be inherent in targeting, the present magnitude of them is not. Current practice shows great variability, suggesting that a great deal of improvement is possible if programs emulate the best practices of others. Countries need to doggedly build the capacities that will allow successful social policy, including the systems that support differentiation of eligibility or benefits where that is a tactic taken. Over the past two decades, there have been many examples of such capacity being built. But there are also examples where once rapid advance has slowed and a few cases of retrocession. The next chapters take up the how-to of focusing resources on the lower end of the welfare spectrum, highlighting progress and pitfalls.