Is more targeting consistent with less spending

Abstract

Economists often advise governments to target their spending better when cuts are called for. The author 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. The author draws some lessons for how the poor might be better protected from cuts.