How relevant is targeting to the success of an antipoverty program?

Better targeting of social policy does not necessarily lead to larger impacts on poverty for a number of reasons:

• fine targeting will impose high marginal tax rates on recipients and thus lower incentives to find a way out of poverty - this can create poverty traps
• fine targeting can also undermine political support for an anti poverty programme and lead to smaller overall transfers. A larger uniform transfer might have more impact on the poor than a small well targeted one.

Also, fine targeting might be less cost-efficient because of:

• administrative costs
• “hidden” costs to recipients, such as work requirements, codes of conduct or sources of social stigma

Relating to those considerations, the author analyses data for the Chinese urban anti poverty programme Di Bao. He finds that the standard measures of targeting are neither informative about the poverty reduction brought about by a social policy measure nor about its cost-effectiveness:

• those cities in China that are better at targeting the Di Bao program are not the ones where the scheme performed the best
• better targeting results are also not significantly correlated with cost-effectiveness, i.e. poverty impact at a given level of programme spending. For some of the measures better targeting is even negatively correlated to cost-effectiveness.

The author concludes that, in programme design and evaluation, it would be better to focus directly on poverty reduction outcomes than to rely on measures of targeting.