The Income Lever and the Allocation of Aid

The paper develops a concept and a measure of the monetary capacity of a country to reduce its own poverty and shows how these tools can be used to guide budget allocations or the allocation of aid. The authors call this concept the income lever. Making use of tax and distributive theory, the paper shows how different redistributive criteria correspond to the different normative criteria of the income lever. It then constructs various income lever indexes based on these criteria and uses such indexes to rank countries according to their own capacity to reduce poverty. As shown in the empirical application, this methodology can provide an equitable tool to rank countries or regions when it comes to budget or aid allocations, whether it is the allocation of social funds within the European Union (North-North transfers) or the allocation of aid from rich to poor countries (North-South transfers). The findings indicate that the allocation of social funds in the European Union follows closely the rank that results from the income lever indexes proposed while the allocation of aid to Sub-Saharan African countries does not.

Bibliographic Details

Main Authors:	Ceriani, Lidia, Verme, Paolo
Language:	en_US
Published:	World Bank, Washington, D.C. 2013-02
Subjects:	absolute poverty, absolute poverty line, absolute terms, affluence, agricultural development, aid effectiveness, American Economic Review, consumer price, developing countries, Development Economics, Development Goals, development indicators, development policy, Development Report, economic development, economic growth, Economic Management, Economics, empirical application, empirical evidence, empirical literature, equal countries, exchange rate, Extreme Poverty, Financial Flows, fiscal stability, global level, global poverty, growth effect, household consumption, household size, household surveys, human rights, Income, income data, income distribution, income distributions, income levels, individual countries, inequality, Living Conditions, low income, low income countries, low-income countries, marginal tax, marginal tax rate, measurement of poverty, micro data, middle income, middle income countries, National Income, Policy Research, Political Economy, political instability, poor, poor areas, poor countries, poor individuals, poor policies, population share, poverty eradication, poverty gap, poverty gap index, poverty incidence, poverty level, poverty line, Poverty measurement, poverty measures, poverty rate, poverty rates, Poverty Reduction, poverty target, Public Policy, Purchasing Power, Purchasing Power Parity, Redistribution Policies, redistributive policies, reducing poverty, Regional Competitiveness, Regional Development, Regional Development Fund, regional policies, Regional Policy, rich countries, social funds, structural vulnerability, targeting, taxation, Volatility, wealth, welfare variable, World Economy,
Online Access:	http://hdl.handle.net/10986/16327
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