For the poor, but Not Only the Poor: On optimal pro-poorness in redistributive policies

Abstract

The optimal design of redistributive systems continues to be a matter of considerable academic and public debate, with the optimal extent and intensity of pro-poor targeting remaining a key issue of contention. This article shows, first, that the overall relationship between pro-poor targeting and income inequality reduction is very weak. Although occasionally the association is positive, it is not robust, very weak, and effectively zero with various reasonable methodological decisions. Second, and more importantly, a detailed disaggregated analysis reveals that the most redistributive systems do contain subsystems that are strongly targeted to the poor by intent and by design. Third, we also show that a disaggregation over the function of social transfers is very relevant: old-age benefits are an important driver of the weak overall association, while for family benefits we find a positive relationship. Absolutely key, however, is our finding that means-tested systems play a crucial role in bringing about redistributive effectiveness, even if their relative size is small. We thus shed new light on the politics of targeting. While it remains important that broad sections of the electorate benefit from social transfers, strong pro-poor targeting within such a context is possible and indeed essential for real redistributive impact. Benefits for the poor need not be poor benefits if and when these are embedded in benefit systems that meet wider redistributive needs and rationales.