Concern about how cuts in public spending affect the poor has led to recommendations that cuts be combined with better targeting to the poor. That should not be difficult if there is broad political support for protecting the poor from cuts. But is it possible to target more, while spending less, when the political support of the nonpoor is crucial—and cannot be counted on?
Economists often advise governments to target their spending better when cuts are called for. Ravallion asks whether that advice is consistent with a political economy constraint that limits the welfare losses to the nonpoor from spending cuts.
A simple theoretical model shows that the answer is unclear on a priori grounds and so will depend on the specifics of program design and financing.
A case study for a World Bank-supported social program in Argentina illustrates how cuts can come with worse targeting performance: The allocation to the poor falls faster than that to the nonpoor.
Ravallion draws some lessons for how the poor might be better protected from cuts.
This paper a product of Poverty and Human Resources, Development Research Group - is part of a larger effort in the group to better understand how the benefits from public spending are distributed. The study was funded by the Bank's Research Support Budget under research project "Policies for Poor Areas" (RPO 681-39). Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Patricia Sader, room MC3-632, telephone 202-473-3902, fax 202-522-1153, Internet address psader@worldbank.org. The author may be contacted at mravallion@worldbank.org. (18 pages)
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