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New Tools for Targeting Social Programs in the Midst of Crises

February 29, 2024 by Diether W. Beuermann - Bridget Hoffmann - Marco Stampini - Diego Vera-Cossio Leave a Comment


In recent decades, dozens of countries around the world have adopted cash transfer programs to combat poverty and prevent it from being passed from generation to generation. While many of these programs have been highly successful at tackling long-term poverty, incomes fluctuate due to economic shocks and the target population of social programs move. During economic crises, such as the COVID-19 pandemic, many households that were not previously in poverty find themselves slipping into poverty, in desperate need of government transfers to pull them back out. Governments, meanwhile, need to know how to adjust the social safety net without breaking the budget.

The challenge of selecting beneficiaries for cash transfers during crises thus becomes critical, especially in Latin America and the Caribbean where more than half the population works in the informal sector without unemployment insurance and even people who work in the formal sector may lack adequate protection.

The Virtues of Dynamic Targeting

In a recent paper we evaluate four methods of selecting beneficiaries for a cash transfer program. We show that while no panacea exists, a dynamic and flexible method that incorporates high frequency data on economic shocks can improve targeting at a reasonable cost during an economic crisis. At the systemic level, shocks can be due to economic crisis, pandemics, and natural disasters. At the family level, they may cause job losses, deaths or illness. Incorporating information on shocks into traditional methods of selecting beneficiaries allows cash transfer programs to serve the purposes of traditional anti-poverty programs and provide a kind of unemployment insurance for low-income families.  

We document the advantages and disadvantages of four different approaches to targeting for a hypothetical program that aims to provide cash transfers to households with income below the extreme poverty line. We use panel data for a random sample of households in the Colombian government’s social registry. The social registry covers close to 50% of the Colombian population and is based on detailed household surveys that collect information about asset ownership, dwelling quality and demographic characteristics –that are combined in a statistical model, called a proxy means test (PMT), to produce an estimate of household income.   

Our results show the virtues and shortcomings of different methods. Many governments use a static PMT, meaning they establish a strict threshold for the PMT under which people are either selected or rejected from social assistance. Our results show that such a static approach would have left many people with very low incomes without assistance as job and income losses piled up during the pandemic. This is reflected in the exclusion error (i.e., the percentage of eligible people who are excluded from social assistance), which climbed from 30% in 2019 to 35% in 2020. An alternative approach relies on the same data but simply increases the eligibility threshold to account for widespread loss of income and include more people.  We simulated this approach by shifting the threshold of eligibility to 1.3 times the extreme poverty line. This reduces the exclusion error in our model. But it also comes at the cost of a large inclusion error, meaning that assistance is delivered to people who are above the extreme poverty line.

A third approach mimics one used by the Colombian government, allowing households to request an update of their asset ownership — a proxy for their income. This method may reflect changes in long-term income, but it comes up short during crises because families may find it difficult to liquidate their assets in such emergencies, preventing the method from accurately reflecting income fluctuations.

Incorporating Income Fluctuations into Social Programs

A fourth approach, which we call dynamic, incorporates higher frequency data. It takes an individual’s baseline poverty indicators, or PMT, and updates it monthly with new information on jobs losses and gains, as well as the previously mentioned non-labor shocks like a natural disaster or illness in the family, to predict income variation. This method, we find, incorporates more people in need and leads to social welfare gains for society, even accounting for moral hazard — i.e. the misrepresentation of employment status by some individuals. This dynamic method increases overall social welfare by 13%, compared to the method of using the traditional static PMT (with the original eligibility threshold) and does so by increasing the budget by only 8%.

Policymakers, of course, will decide what methods work best for them, depending on their flexibility in terms of transfer amounts and overall budget constraints. For example, expanding the safety net by increasing the eligibility threshold to 1.3 times the extreme poverty line increases social welfare by the 32%, but increases the budget by 37%. Other methods have different tradeoffs.

A Valuable Tool for Latin America and the Caribbean

A critical challenge in Latin America and the Caribbean, with its high informality rates, is the large number of people who lack any kind of insurance to protect them in cases of a severe income shock. At risk of falling into poverty, they need governmental help and need it quickly before their poverty becomes chronic. The region has achieved significant results in the fight against structural poverty.  It now needs to make its social protection systems more flexible, to deal with shocks that affect vulnerable people who are normally above the poverty line. A more dynamic targeting approach offers such an option. It could prove essential during widespread disruptions ranging from pandemics to natural disasters.


Filed Under: Uncategorized

Diether W. Beuermann

Diether W. Beuermann is a Lead Economist in the Caribbean Country Department of the Inter-American Development Bank. He has led research and data collection projects in various countries, including Barbados, Colombia, Guyana, Jamaica, Peru, Russia, Suriname, The Bahamas, Democratic Republic of Congo, Trinidad and Tobago, and the United States. His research has covered the effects of different information and communication technologies on agricultural profitability, child labor, academic performance, pre-natal care, and neo-natal health. He has also conducted research on the effectiveness of participatory budgeting, the short- and long-run effects of educational quality, the multidimensional nature of school causal effects, the determinants of school choice, the effectiveness of math-focused parenting programs, the role of remittances as a social insurance mechanism, the effects of early-life weather shocks on short- and long-term human capital accumulation, the effects of public health insurance on health outcomes and labor supply, the effects of behavioral-based entrepreneurship training on firm profitability, the effects of blue-collar crime on financial access and credit prices of affected firms, and whether and how conditional cash transfers may affect the effectiveness of other human capital development policies. He has published in several leading international peer-reviewed journals, including the Review of Economic Studies, American Economic Journal: Applied Economics, Journal of Human Resources, Journal of Health Economics, Journal of Development Economics, and World Development. He holds a B.A. in Business Management and a B.Sc. in Economics from the Universidad de Lima, a M.Sc. in Finance from the University of Durham, and a M.A. and Ph.D. in Economics from the University of Maryland-College Park.

Bridget Hoffmann

Bridget Hoffmann is an economist in the Research Department of the Inter-American Development Bank. Her research interests are applied microeconomics, development economics, and environmental economics. She received her Ph.D. in Economics from Northwestern University in 2015. She holds a bachelor’s degree in Financial Economics and Mathematics from the University of Rochester.

Marco Stampini

Marco Stampini is Social Protection Lead Specialist at the Inter-American Development Bank in Washington, DC. Prior to joining the IDB in May 2011, he was Principal Research Economist at the Development Research Department of the African Development Bank. He previously held a research position at Sant'Anna School of Advanced Studies, Pisa, Italy, and consulted on various development themes for the Food and Agriculture Organization of the United Nations, the World Bank and the Inter-American Development Bank. He has been Visiting Fellow at Harvard University and University of Brasilia, and Senior Lecturer at the Catholic University of America. He holds a Masters in Applied Economics from CORIPE Piedmont, and a Ph.D. in Environmental Economics from Sant'Anna School of Advanced Studies.

Diego Vera-Cossio

Diego Vera-Cossio is an economist in the Research Department of the Inter-American Development Bank. His area of interest is development economics. In particular, his research analyzes how different policies help or prevent family businesses from growing in contexts in which access to finance is limited. He is also interested in understanding how different methods of targeting and delivering resources from public programs affect policy effectiveness. Diego, a citizen of Bolivia, received his Ph.D. in Economics from the University of California, San Diego in 2018. He holds a Master’s Degree in Economics from Universidad de Chile and a Bachelor’s Degree in Economics from Universidad Católica Boliviana.

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