Proxy means tests for targeting social programs. Simulations and speculation

Type Report
Title Proxy means tests for targeting social programs. Simulations and speculation
Publication (Day/Month/Year) 1995
This paper examines how a proxy means test might work in targeting social programs.The term \"proxy means test\" is used to describe a situation where information on household orindividual characteristics correlated with welfare levels is used in a formal algorithm to proxy household income, welfare or need. Given the administrative difficulties associated with sophisticated means tests and the inaccuracy of simple means tests, the idea of using other household characteristics as proxies for income is appealing.Chapter II carries out simulations on data sets from Jamaica, Bolivia and Peru to explorewhat kind of information can best be used in a proxy means test and how accurate such tests might be expected to be. The results show that household characteristics can serve as reasonableproxies for information on income in assessing eligibility for social programs. More informationis generally better than less, though there are diminishing returns. The proxy systems all havesignificant errors of undercoverage, but they cut down leakage so much that the impact onpoverty is better with imperfect targeting than with none. Some fine-tuning of the basic system,such as calibrating for the poorest half of the population, improves results considerably. In Jamaica, calibrating separately for rural and urban areas did not improve results. An assumed 25 percent level of distortion of information had no effect at all on targeting outcomes.Chapter III describes the practical experience with Chile's Ficha CAS system, one of theoldest and best-known proxy means tests in the developing world. Chapter IV discusses inqualitative terms some of the strategic choices and implications in setting up proxy means tests of different sorts. The amount of staff time, the amount of training required for staff at different levels, the number of computers, and the transport and communications links required will vary greatly depending on the decisions regarding how the system should be set up

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