Poverty Alleviation Strategies Under Informality: Evidence for Latin America

Martín Caruso, Sebastian Galiani and Federico Weinschelbaum

No 26339, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: I38 J38 O54 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-iue, nep-lam, nep-lma and nep-ltv
Note: DEV
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Martin Caruso Bloeck & Sebastian Galiani & Federico Weinschelbaum, 2019. "Poverty alleviation strategies under informality: evidence for Latin America," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 28(1), pages 1-40, December.

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