Equity and Policy Effectiveness with Imperfect Targeting

Abstract

We propose a general cost-of-inequality approach that jointly integrates horizontal and vertical equity criteria in the assessment of poverty alleviation programs, with the strength of each criterion being captured through its own inequity-aversion parameter. This contrasts with the assessment of poverty alleviation programs done with simple under-coverage and leakage ratios or with other methods that do not take into account the heterogeneity of the poor and that do not address directly the social benefits of achieving normative criteria. Our methodology is illustrated using Tunisian data and two alternative poverty alleviation policies. We find inter alia that the social ranking of commodity and socio-demographic targeting in Tunisia depends on the policymaker's comparative preference for vertical and horizontal equity.