Targeting versus Universality: Is There a Middle Ground?

Abstract

In the last few years, proposals to introduce a universal basic income or universal basic income (UBI) have proliferated. Proponents point out that narrowly targeted programs exclude many of the poor. Critics point out that universality spreads limited resources thinly over the population limiting the impact on poverty for a given level of spending. While high income countries can claw back the transfer to the higher income group through a progressive income tax, this is not possible in developing countries where most people operate in the informal sector. This note looks at an alternative to either narrow targeting or UBI. It uses household survey data from 52 low and middle-income countries to compare the poverty impact of a UBI to a transfer that is gradually reduced as estimated consumption increases. The taper can be set at different rates and can lead to zero transfers to households above a chosen threshold. The tapered UBI (TUBI) can be based on proxy indicators for unobserved income from special surveys and administrative databases. Both are becoming more common as government databases are digitized.