A poverty-focused evaluation of commodity tax options

The difficulties faced by many developing countries in raising revenue from direct taxes have forced them to rely heavily on indirect taxes to finance development interventions. The purpose of this paper is to show how to identify socially desirable options for commodity taxation in the context of a poverty reduction strategy. Within the logic of social evaluation the author assesses tax options on the basis of value judgments underlying members of the additively separable class of poverty measures. The criterion hinges on both the pattern of consumption of each commodity and the price elasticity of the poverty measure used. An application of this methodology to data for Guinea shows that many components of food expenditure (particularly cereals, grains, and roots) would be good candidates for exemption from value-added tax. Even though expenditure on health and education is distributed in favor of the non-poor, their importance for human capital development argues for a program of targeted subsidies in a broader context of cost recovery.Rural Poverty Reduction,Population Policies,Economic Theory&Research,Achieving Shared Growth

Propensity score matching and policy impact analysis - a demonstration in EViews

Effective development policymaking creates a need for reliable methods of assessing effectiveness. There should be, therefore, an intimate relationship between effective policymaking and impact analysis. The goal of a development intervention defines the metric by which to assess its impact, while impact evaluation can produce reliable information on which policymakers may base decisions to modify or cancel ineffective programs and thus make the most of limited resources. This paper reviews the logic of propensity score matching (PSM) and, using data on the National Support Work Demonstration, compares that approach with other evaluation methods such as double difference, instrumental variable, and Heckman's method of selection bias correction. In addition, it demonstrates how to implement nearest-neighbor and kernel-based methods, and plot program incidence curves in E-Views. In the end, the plausibility of an evaluation method hinges critically on the correctness of the socioeconomic model underlying program design and implementation, and on the quality and quantity of available data. In any case, PSM can act as an effective adjuvant to other methods.Poverty Monitoring&Analysis,Poverty Impact Evaluation,Statistical&Mathematical Sciences,Scientific Research&Science Parks,Science Education

Identification of sources of variation in poverty outcomes

The international community has declared poverty reduction one of the fundamental objectives of development, and therefore a metric for assessing the effectiveness of development interventions. This creates the need for a sound understanding of the fundamental factors that account for observed variations in poverty outcomes either over time or across space. Consistent with the view that such an understanding entails deeper micro empirical work on growth and distributional change, this paper reviews existing decomposition methods that can be used to identify sources of variation in poverty. The maintained hypothesis is that the living standard of an individual is a pay-off from her participation in the life of society. In that sense, individual outcomes depend on endowments, behavior and the circumstances that determine the returns to those endowments in any social transaction. To identify the contribution of each of these factors to changes in poverty, the statistical and structural methods reviewed in this paper all rely on the notion of ceteris paribus variation. This entails the comparison of an observed outcome distribution to a counterfactual obtained by changing one factor at a time while holding all the other factors constant.Economic Theory&Research,Labor Policies,Markets and Market Access,Environmental Economics&Policies,Poverty Monitoring&Analysis

Measuring the pro-poorness of income growth within an elasticity framework

Poverty reduction has become a fundamental objective of development, and therefore a metric for assessing the effectiveness of various interventions. Economic growth can be a powerful instrument of income poverty reduction. This creates a need for meaningful ways of assessing the poverty impact of growth. This paper follows the elasticity approach to propose a measure of pro-poorness defined as a weighted average of the deviation of a growth pattern from the benchmark case. The measure can help assess pro-poorness both in terms of aggregate poverty measures, which are members of the additively separable class, and at percentiles. It also lends itself to a decomposition procedure, whereby the overall pattern of income growth can be unbundled, and the contributions of income components to overall pro-poorness identified. An application to data for Indonesia in the 1990s reveals that the amount of poverty reduction achieved over that period remains far below what would have been achieved under distributional neutrality. This conclusion is robust to the choice of a poverty measure among members of the additively separable class, and can be tracked back to changes in expenditure components.Achieving Shared Growth,Population Policies,Services&Transfers to Poor,Inequality,Rural Poverty Reduction

Reading tealeaves on the potential impact of the privatization of tea estates in Rwanda

The Poverty Reduction Strategy of the Government of Rwanda seeks to unlock the growth and poverty reduction potential of the tea sector through the privatization of tea estates. This paper uses the logic of causal inference and data from the 2004 Quantitative Baseline Survey of the tea sector to assess the potential impact of the privatization program. This entails anormalized comparison of productivity outcomes to account for household heterogeneity in terms of observable and non-observable determinants of these outcomes. The paper also compares living standards between tea and non-tea households. Three main findings emerge from the analysis. Productivity outcomes are generally better in the private sector than in the public sector. Male-headed households outperform female-headed households along all dimensions considered here. And tea households tend to be better off than non-tea households.Crops&Crop Management Systems,Access to Finance,Poverty Monitoring&Analysis,Small Area Estimation Poverty Mapping,Housing&Human Habitats

Accounting for heterogeneity in growth incidence in Cameroon

This paper presents counterfactual decompositions based on both the Shapley method and a generalization of the Oaxaca-Blinder approach to identify proximate factors that might explain differences in the distribution of economic welfare in Cameroon in 1996-2007. In particular, the analysis uses re-centered influence function regressions to link the growth incidence curve for 2001-2007 to household characteristics and account for heterogeneity of impact across quantiles in terms of the composition (or endowment) effect and structural (or price) effect. The analysis finds that the level of the growth incidence curve is explained by the endowment effect while its shape is driven by the price effect. Observed gains at the bottom of the distribution are due to returns to endowments. The rest of the gains are accounted for by the composition effect. Further decomposition of these effects shows that the composition effect is determined mainly by household demographics while the structural effect is shaped by the sector of employment and geography. Finally, analysis of the rural-urban gap in living standards shows that, for the poorest households in both sectors, differences in household characteristics matter more than the returns to those characteristics. The opposite is true for better-off households.Rural Poverty Reduction,Achieving Shared Growth,Regional Economic Development,Economic Theory&Research

Too little too late : welfare impacts of rainfall shocks in rural Indonesia

The authors use regression analysis to assess the potential welfare impact of rainfall shocks in rural Indonesia. In particular, they consider two shocks: (i) a delay in the onset of monsoon and (ii) a significant shortfall in the amount of rain in the 90 day post-onset period. Focusing on households with family farm businesses, the analysis finds that a delay in the monsoon onset does not have a significant impact on the welfare of rice farmers. However, rice farm households located in areas exposed to low rainfall following the monsoon are negatively affected. Rice farm households appear to be able to protect their food expenditure in the face of weather shocks at the expense of lower nonfood expenditures per capita. The authors use propensity score matching to identify community programs that might moderate the welfare impact of this type of shock. Access to credit and public works projects in communities were among the programs with the strongest moderating effects. This is an important consideration for the design and implementation of adaptation strategies.Science of Climate Change,Climate Change Mitigation and Green House Gases,Housing&Human Habitats,Rural Poverty Reduction,Regional Economic Development