Optimal income support targeting
Stefan De Wachter and Sebastian Galiani
,
6
(
13
)
International Tax and Public Finance
661-684
November
2006
Abstract
This paper considers the practical problem of distributing a fixed budget for poverty alleviation to a population whose poverty status is not directly observable. The solution we propose improves on the techniques that are commonly used in practice by taking both the concavity of the social welfare function and the entire conditional distribution of poverty status into account, and by endogenously determining the optimal transfer levels. We provide an algorithm to calculate the optimal transfers for any population of benefit applicants.