Commodity Taxation and Social Welfare: The Generalised Ramsey Rule

Commodity taxes have three distinct roles: (1) revenue collection, (2) interpersonal redistribution, and (3) resource allocation. The paper presents an integrated treatment of these three concerns in a second-best general equilibrium framework, which leads to the "generalised Ramsey rule for optimum taxation. We show how many standard results on optimum taxation and tax reform have straightforward counterpart in this general framework. Using this framework, we also try to clarify the notion of "deadweight loss", as well as the relation between alternative distributional assumptions and the structure of optimum taxes.

Designing and evaluating social safety nets

"This paper reviews issues highlighted in the literature on the performance of commonly found social safety net programs in developing countries. It makes particular reference to food subsidies (universal and administratively targeted), public works schemes, and targeted human capital subsidies. Although this set of programs is not exhaustive, it does account for a large proportion of program types, and many of the issues raised here apply equally to other social expenditures." from Author's AbstractSafety nets ,evaluation ,Food subsidies ,Community participation ,Public works ,social policies ,Income distribution ,Poverty alleviation ,

Evaluating targeted cash transfer programs: a general equilibrium framework with an application to Mexico

This report focuses on the indirect and direct effects of transfer programs. In particular, it shows how modelling results can be combined with information from standard household surveys to provide an integrated analysis of the direct distributional impact of such programs and the indirect distributional and efficiency impacts arising from domestic financing mechanisms. This approach reflects the view that any credible poverty alleviation strategy must have a credible financing strategy underlying it, and this need for domestic financing can have important consequences for both the level and the distribution of household incomes. To illustrate the approach, the report focuses on the recent introduction in Mexico of an innovative poverty alleviation transfer program called PROGRESA, which has been used as a prototype for similar programs that have recently been implemented in other developing countries.Economic assistance, Domestic Mexico Evaluation, Public welfare - Mexico Evaluation,

On the targeting and redistributive efficiencies of alternative transfer instruments

The paper shows how the so-called distributional characteristic of a policy instrument can be additively decomposed into two components; one that captures the targeting efficiency of the instrument, the other its redistributive efficiency. Using these measures, the paper provides an interpretation of the commonly used leakage and undercoverage rates (and other indices based on these concepts) within standard welfare theory. An empirical application of the decomposition approach to Mexican data is presented.Welfare economics Mathematical models ,Mexico ,

Are the welfare losses from imperfect targeting important?

The authors evaluate the size of the welfare losses from using alternative “imperfect” welfare indicators as substitutes for the conventionally preferred consumption indicator. They find that whereas the undercoverage and leakage welfare indices always suggest substantial losses, and the poverty indices suggest substantial losses for the worst performing indices, their preferred welfare index based on standard welfare theory suggests much smaller welfare losses. They also find that one cannot reject the hypothesis that the welfare losses associated with using the better performing alternative indicators are zero. In the case of their preferred welfare index, this reflects the fact that most of the targeting errors, i.e., exclusion and inclusion errors, are highly concentrated around the poverty line so that the differences in welfare weights between those receiving and not receiving the transfers are insufficient to make a difference to the overall welfare impact.Welfare economics. ,Poverty. ,Consumption (Economic theory). ,

On the targeting and redistributive efficiencies of alternative transfer instruments

The paper shows how the so-called distributional characteristic of a policy instrument can be additively decomposed into two components; one that captures the targeting efficiency of the instrument, the other its redistributive efficiency. Using these measures, the paper provides an interpretation of the commonly used leakage and undercoverage rates (and other indices based on these concepts) within standard welfare theory. An empirical application of the decomposition approach to Mexican data is presented.Welfare economics Mathematical models ,Mexico ,

Designing and evaluating social safety nets

"This paper reviews the literature on the performance of commonly found social safety net programs in developing countries. The evidence suggests that universal food subsidies have very limited potential for redistributing income. While targeted food subsidies have greater potential, this can only be realized when adequate attention is given to the design and implementation, as well as to the social and political factors influencing the adoption, of these programs. Although well-designed public works programs have impressive targeting performance, they have large non-wage costs; thus, to be cost-effective, they need to produce outputs that are especially beneficial to poor households. Social funds, which emphasize both community involvement and asset creation, have been cost-effective, but they are difficult to target to extremely poor households. Traditional public works programs are particularly attractive for addressing vulnerability, but they require flexibility regarding choice of output. Targeted human capital subsidies appear to have great potential for addressing extreme poverty; but again, their design needs to reflect the human capital profile of countries and the administrative capability of the government." Author's AbstractSafety nets ,evaluation ,Food subsidies ,Poverty alleviation ,social policies ,Income distribution ,Community participation ,Public works ,

Information and participation in a social program

Participation in a social program, like that in clubs and other social organizations, is the result of a process in which an agent first learns about the requirements, benefits, and the likelihood of acceptance, applies for membership, and finally is accepted or rejected. At each stage of the process, decisions made by the agent are responsive to expectations about the decisions and outcomes at the following stages. We propose a model of the participation process and estimate it using data from a social program in Mexico. We are able to distinguish empirically between information costs and other application costs, and show that self-selection due to information costs in fact contributes to targeting the program to the poorest families.Program participation, take up, information aquisition, targeting, undercoverage, leakage

Program participation under means-testing and self-selection targeting methods

"Using data that enables us to distinguish between the different components of program participation (i.e., knowledge, application, and acceptance), we investigate the determinants of household behavior and program implementation in a social safety-net program that combines administrative and self-selection targeting methods. High undercoverage of eligible households primarily reflects lack of knowledge and binding budget constraints in poor areas. High leakage to ineligible households reflects the combination of their high levels of knowledge, application, and acceptance. Lowering undercoverage will require greater program awareness among the poor living in nonpoor areas and this is likely to come at the expense of substantial leakage to the nonpoor unless improvements are made to the verification process. Our results also suggest that in the presence of a budget constraint, the administrative selection process gives priority to the poorest households and those with children." Authors' AbstractMeans testing ,Targeting performance ,Social safety nets ,Oportunidades ,households ,

Evaluating transfer programs within a general equilibrium framework

The authors set out a general equilibrium model for the evaluation of a domestically financed transfer program, which helps to combine the results from a computable general equilibrium model with disaggregated household data.Using a Mexican cash transfer program as an illustration, they use the approach to show that the substantial welfare gains that result from the switch from universal food subsidies to targeted cash transfers reflect both the improved targeting efficiency of the latter as well as a relaxation of the trade-off between equity and efficiency objectives when designing tax systems.FCND ,Subsidies Mexico. ,Transfer payments. ,Equilibrium (Economics) Models. ,