How Narrow Should Targeting Be

The question often arises as to how narrow targeting should be, especially when poverty rates are high. Is ensuring that benefits go primarily to the large number of poor satisfectory, or should benefits go to the poorest subgroup, say the bottom 10 percent of the distribution  

Trying to concentrate benefits as fer down the distribution as possible, even when overall poverty is high, is advisable tor two reasons. The first reason is cost. Especially where many people are poor, the budget derived from taxes will be limited, because the pool of people who can pay taxes will be small. International assistance may provide a good deal of the social assistance budget in such cases, but it is still always insufficient to provide for all the basic priorities in a country. Thus safety net budgets tend to be low relative to needs, and the more so the poorer the country. 

The second reason to try to concentrate benefits as far down the distribution as possible is that most moral philosophy values the welfare of the poorest more than the welfare of the less poor. Afe illustrate the difference in welfare among the poor empirically with an example from Burkina Faso. When looking at the full distribution of welfare as shown in figure a, poverty is high and the distribution looks fairly flat, but when we zoom in on the poor end of the spectrum as shown in figure b, we see that the bottom 10 percent of the distribution has consumption levels of half or less than those who are just poor. Thus this group is much needier and will benefit much more from a transfer. 

SOURCE Based on data from the 3rd Priority Survey, National Institute of Statistics and Economic Studies, Ouagadougou, Burkina Faso. 

NOTE The dotted verticai iine is the poverty iine. The richest 0.5 percent of households were omitted. 

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