Munich Personal RePEc Archive Assessing the Targeting Performance of Social Programs: Cape Verde

Budget constraints faced by governments in developing countries imply that effectively targeting performance of public subsidies and social pro-grams (whether the subsidies are provided in cash or in kind) is impor-tant in reducing poverty.There are three main advantages to effective tar-geting. First, for programs not intended to offer universal coverage, better targeting helps reduce program outlay because there are fewer benefici-aries. Second, for any given level of outlay, better targeting suggests that the share of public expenditure that accrues to poor people typically will be higher and so will enable the programs to have a larger impact on poverty.Third, targeting may help reduce the potential negative incentive effects or distortions in economic behavior associated with transfers if fewer households are affected by the programs. For example, if fewer households benefit from subsidized water or electricity service, there will be less incentive to consume more than would be consumed normally if the full cost of the service were paid by the household. Too much target-ing, however, can produce negative incentive effects. In some industrial countries, transfers may lead to poverty traps whereby the incentives for some households to emerge from poverty are lessened by high implicit taxation rates associated with increased income and decreased transfers