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Poverty alleviation strategies under informality: Evidence for Latin America

Author

Listed:
  • Martín Caruso Bloeck
  • Sebastian Galiani
  • Federico Weinschelbaum
Abstract
Strategies based on growth and inequality reduction require a long-run horizon, and this paper therefore argues that those strategies need to be complemented by poverty alleviation programs. With regards to such programs, informality in Latin America and the Caribbean is a primary obstacle to carry out means testing income-support programs, and countries in the region have therefore mostly relied on proxy means testing mechanisms. This paper studies the relative effectiveness of these and other mechanisms by way of a formal model in which workers choose between job opportunities in the formal and informal sectors. Although the means testing mechanism allows for a more pro-poor design of transfers, it distorts labor decisions made by workers. On the other hand, (exogenous) proxy means testing does not cause distortions, but its pro-poor quality is constrained by the power of observable characteristics to infer income levels. However, since taxation is necessary to fund programs, redistribution becomes less effective, especially for programs other than means testing. The paper concludes by discussing the implications of these results for the design of more efficient targeting programs.

Suggested Citation

  • Martín Caruso Bloeck & Sebastian Galiani & Federico Weinschelbaum, 2019. "Poverty alleviation strategies under informality: Evidence for Latin America," Documentos de Trabajo 17583, The Latin American and Caribbean Economic Association (LACEA).
    • Handle: RePEc:col:000518:017583
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    References listed on IDEAS

    as
    1. Ravallion, Martin & Chen, Shaohua, 1997. "What Can New Survey Data Tell Us about Recent Changes in Distribution and Poverty?," The World Bank Economic Review, World Bank, vol. 11(2), pages 357-382, May.
    2. Stefan Wachter & Sebastian Galiani, 2006. "Optimal income support targeting," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(6), pages 661-684, November.
    3. Ravallion, Martin, 1997. "Can high-inequality developing countries escape absolute poverty?," Economics Letters, Elsevier, vol. 56(1), pages 51-57, September.
    4. Rema Hanna & Benjamin A. Olken, 2018. "Universal Basic Incomes versus Targeted Transfers: Anti-Poverty Programs in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 32(4), pages 201-226, Fall.
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    6. Hanna, Rema & Olken, Benjamin A., 2018. "Universal Basic Incomes vs. Targeted Transfers: Anti-Poverty Programs in Developing Countries," Working Paper Series rwp18-024, Harvard University, John F. Kennedy School of Government.
    7. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-261, March.
    8. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
    9. Vivi Alatas & Abhijit Banerjee & Rema Hanna & Benjamin A. Olken & Julia Tobias, 2012. "Targeting the Poor: Evidence from a Field Experiment in Indonesia," American Economic Review, American Economic Association, vol. 102(4), pages 1206-1240, June.
    10. Sebastian Galiani & Federico Weinschelbaum, 2012. "Modeling Informality Formally: Households And Firms," Economic Inquiry, Western Economic Association International, vol. 50(3), pages 821-838, July.
    11. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
    12. Sen, Amartya K, 1976. "Poverty: An Ordinal Approach to Measurement," Econometrica, Econometric Society, vol. 44(2), pages 219-231, March.
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    Full references (including those not matched with items on IDEAS)

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    1. Agustin Redonda & Christopher Axelson, 2021. "Assessing pension-related tax expenditures in South Africa: Evidence from the 2016 retirement reform," WIDER Working Paper Series wp-2021-54, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Poverty; inequality; means testing; proxy means testing; Latin America and the Caribbean;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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