Jouste, Kanbur, Pirttilä, Rattenhuber (eds.), Poor Protection: The Role of Taxes and Social Benefits in the Developing World During Crises
Abstract
This study evaluates which type of benefit—a universal benefit, a proxy mean-tested benefit, or a categorical benefit—better cushions the poverty effects of income shocks in a developing economy. We compare the effectiveness of the three benefit schemes on poverty first conceptually and then by considering two different crisis scenarios, the COVID-19 pandemic and a hypothetical agricultural shock, in a tax–benefit microsimulation model for Ethiopia. The results suggest that while the proxy means-tested benefits are the most effective in reducing the poverty gap index, a simple categorical benefit is equally good in lowering the headcount poverty, in situations with and without crises. Universal benefits may lead to lower poverty increases when relatively more severe crises hit. This suggests that there could be a trade-off between minimizing poverty during normal times and offering protection against shocks when the poverty incidence changes.
