Counting and Accounting: Measuring the Effectiveness of Fiscal Policy in Multidimensional Poverty Reduction

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In this paper we propose indicators of impact and spending effectiveness of fiscal interventions for multidimensional poverty reduction. We bring together CEQ’s fiscal incidence methodology with OPHI’s multidimensional poverty methodology, using an MPI with the 𝑀0 structure as the metric for evaluation. The effectiveness indicators in the multidimensional case need to simultaneously consider the best allocation of money across dimensions (which deprivations to lift?) and across households (to whom should they be lifted?). In the impact effectiveness indicator, the observed poverty reduction is compared against the optimal reduction that could have been achieved. In turn, the spending effectiveness indicator compares the observed spent budget with the minimum budget that could have been spent had the money been allocated optimally. We consider two alternative criteria to find the optimal allocation: one that prioritizes reducing poverty (either incidence or intensity) to the biggest number of people -the MaxN-LNOB criterion- and another which prioritizes reducing poverty among poorest poor -the LNOB-MaxN criterion- which is a form of prioritarianism. When household sizes are ignored or poverty identification is done at the individual level, the two criteria coincide. The proposed methodology can be implemented using cross-sectional household survey (or census) data, alongside information on the cost of removing each deprivation at the household level, and information on the public spending the government has allocated or plans to allocate to the dimensions under analysis. The methodology can be implemented ex-post, as an effectiveness assessment, as well as ex-ante, to guide a multidimensional poverty reduction programme.

Maria Emma Santos is a Research Associate at OPHI and a Post-Doctoral Fellow of the Consejo Nacional de Investigaciones Cientificas y Tecnicas (CONICET), Argentina. Her research interests include the measurement and analysis of chronic and multidimensional poverty, the quality of education, its determinants, and its role for poverty persistence. She is particularly interested in Latin American countries.