Targeting Cash Transfer Programs for an Older Population

Targeting based on individuals or households needs instead of applying universal programs helps distribute scarce resources to those who need it most, avoiding “leakage” of the poverty budget to non-poor households. In this paper, the authors explore the use of different household and individual characteristics for targeting needy households. They estimate a Heckman selection model to explain household income and use the estimated model to simulate the effects of different means testing schemes. Their analysis focuses on the evaluation of cash transfer programs for older populations. Using data from the Survey of Household Socioeconomic Characteristics in the State of Yucatan, Mexico, they evaluate the feasibility and target efficiency of different possible means-tested programs. Their analysis shows that a means-tested “flat rate” option would be more effective in alleviating poverty than the less costly option of a sliding scale. The tradeoff between raising welfare for the poor, thereby prioritizing low under coverage rates; and allocating limited resources, thus prioritizing low overall costs of a program, remains however a political challenge for all administrations designing poverty alleviation programs.